CASPIAN DEVELOPMENT ADVISORY PANEL
INTERIM REPORT ON AZERBAIJAN AND GEORGIA
(AUGUST 2003)
Copyright © 2003 Caspian Development Advisory Panel TABLE OF CONTENTS
I Executive Summary...... 1 II Introduction ...... 13 A. The Panel and Its Mandate...... 14 B. Overview of the Caspian Projects...... 18 C. Strategic Importance of the Caspian Projects ...... 20 III Governing Legal Regime...... 23 A. Overview of the Governing Legal Regime ...... 24 B. Clarification of Legal Standards and Remedies...... 25 C. Human Rights Concerns ...... 28 IV Economic Impact...... 30 A. Anticipated Income Flows and Management...... 32 1. Azerbaijan...... 32 2. Georgia...... 37 3. Transparency Issues...... 39 B. Procurement, Employment and Small- and Medium-Size Enterprises..... 41 1. Procurement ...... 42 2. Employment...... 45 C. Domestic Access to Energy ...... 47 1. Georgia...... 48 2. Azerbaijan...... 51 V Environmental Impact ...... 55 A. Azerbaijan ...... 56 1. Drill Cuttings ...... 57 2. Oil Spills...... 59 3. Sangachal Terminal ...... 61 4. Publication of Scientific Information...... 62 B. Georgia...... 63 1. Pipeline Routing...... 63 2. Mitigation Measures...... 70 C. Decommissioning/Abandonment...... 72 1. The Contractual Framework for Decommissioning ...... 72
- i - 2. Disposition of Offshore Facilities...... 74 3. Disposition of Onshore Facilities...... 76 VI Social Impact ...... 79 A. Land Acquisition, Economic Displacement and Compensation...... 80 1. Overview of Land Acquisition and Its Challenges...... 80 2. The Land Compensation Process...... 83 a) Land Transactions...... 84 b) Outstanding Legal Issues...... 86 c) Monitoring and Grievance Procedures ...... 88 B. Cultural Heritage Management...... 90 1. Cultural Heritage Management Planning...... 90 2. Gobustan Reserve...... 91 VII Sustainable Investment...... 93 A. BP’s Existing Investment Programs...... 95 1. Community Investment...... 95 2. Environmental Investment...... 96 3. Social Investment...... 97 B. Recommendations for Investment in Sustainable Development ...... 97 VIII Conclusions ...... 103 IX Appendices ...... 107 Appendix A Partial List of Meetings and Consultations...... 108 Appendix B Terms of Reference...... 114 Appendix C Biographies of Panel Members ...... 116
- ii - LIST OF ABBREVIATIONS
ACG Azeri-Chirag-Gunashli offshore oil field AIOC Azerbaijan International Operating Company APLR Association for Protection of Landowners’ Rights BTC BTC Pipeline Company BTC pipeline Baku-Tbilisi-Ceyhan oil pipeline BPEO Best Practicable Environmental Option CAS Center for Archeological Studies CDAP Caspian Development Advisory Panel CHM Plans Cultural Heritage Management Plans CIP Community Investment Program CLEE Center of Legal and Economic Education EBRD European Bank for Reconstruction and Development EIP Environmental Investment Program EITI Extractive Industries Transparency Initiative ESIA Environmental and Social Impact Assessments GGIC Georgia Gas International Corporation GGMW Georgia Glass and Mineral Water company GIOC Georgian International Oil Corporation HGA Host Government Agreement IDPs internally displaced persons IFC International Finance Corporation IGA Inter-Governmental Agreement IMF International Monetary Fund IMO International Maritime Organization NGO non-governmental organization PSA Production Sharing Agreement PRSP Poverty Reduction Strategy Paper RAP Resettlement Action Plan SCP South Caucusus Pipeline SIP Social Investment Program
- iii - SME small- and medium-size enterprise SOCAR State Oil Company of the Azerbaijan Republic SOFAZ State Oil Fund of the Azerbaijan Republic USAID U.S. Agency for International Development WWF World Wide Fund for Nature
BP established The Caspian Development Advisory Panel ("CDAP") as an independent external panel as part of its plan to ensure that the Baku-Tbilisi-Ceyhan (BTC) pipeline is a world class model project. CDAP's terms of reference include the provision of objective advice to the Company on the economic, social and environmental impacts of the pipeline project in Azerbaijan, Georgia and Turkey. The views, opinions and recommendations expressed in CDAP's Interim Report are solely those of CDAP alone and are not necessarily shared by BP or its partners in the pipeline project.
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Executive Summary
Section I
Executive Summary
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This is the first Interim Report of the Caspian Development Advisory
Panel (CDAP or the Panel), which was commissioned by Lord John Browne, Group
Chief Executive Officer of BP, in January 2003 as an independent, external advisory
body to provide Lord Browne and BP with objective advice on the economic,
environmental and social impacts of the Baku-Tbilisi-Ceyhan oil pipeline (BTC pipeline)
and other related BP activities in Azerbaijan, Georgia and Turkey. Although the Panel is
funded by BP, the company has honored its commitment to give the Panel complete
independence. The members of the Panel, which was established with a three-year
mandate, include Jan Leschly (chair), Stuart Eizenstat, Jim MacNeill and Mohamed
Sahnoun. The Panel has held meetings with government officials, non-governmental organizations (NGOs), think tanks, academics and other experts in London, Washington,
D.C., Azerbaijan and Georgia. Because the Panel’s March 2003 visit to the Caspian
region coincided with the outbreak of the war in Iraq, the Panel was unable to travel to
Turkey. As a result, this Interim Report focuses almost exclusively on Azerbaijan and
Georgia. The Panel will travel to Turkey in the Fall of 2003 and issue another report
focusing principally on that market.
BP is the lead investor in two upstream facilities to develop oil and gas
resources in the Caspian Sea as well as in two pipelines to export gas and oil to world
markets through Turkey (together “the Projects”). Specifically, BP and its partners are
developing the Azeri-Chirag-Gunashli (ACG) oilfield and the Shah Deniz gas field off
the Azerbaijan coast. In addition, BP and its partners are constructing the Baku-Tbilisi-
Ceyhan (BTC) pipeline to transport the oil developed at ACG to the Mediterranean port
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Executive Summary of Ceyhan, and the South Caucuses Pipeline (SCP) to transport the gas developed at Shah
Deniz from Baku to the Turkish border.
In the Panel’s view, the development of the ACG and Shah Deniz fields, along with the construction of the BTC and SCP pipelines, are projects of immense strategic significance, both for the host countries and for the world at large. For
Azerbaijan and Georgia, the development of Caspian energy resources represents an opportunity to diversify their supply sources, to accelerate economic development and to reinforce nascent democratic institutions. The Projects will also give Turkey access to an important and significant supply of natural gas. In addition, the pipeline routing allows for the export of hydrocarbons through Turkey directly to the Mediterranean Sea, avoiding the need for additional tanker traffic through the economically vital and environmentally sensitive Bosphorus Straits.
Although the Panel recognizes that the Projects present historic opportunities for the Azerbaijani and Georgian economies, the Panel also is cognizant of the significant risks that are present. In particular, oil and gas wealth can be a development “curse” if revenues are coupled with weak or underdeveloped governance structures, a lack of transparency in government functions, underdeveloped civil societies and broad economic needs. For such countries, energy wealth has the potential to inhibit rather than increase growth and development. Azerbaijan displays a number of the conditions that frequently are associated with the oil and gas “curse,” and Georgia faces similar risks for somewhat different reasons. Indeed, in making the transition to market economies both countries share certain broader, related challenges in attaining the potential economic benefits from the BP-led Caspian Projects.
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The Panel also notes the potential incongruity of more than one million barrels of oil and an equally significant amount of natural gas passing every day through or near villages and towns where houses have no heat or electricity. In the Panel’s view, such a dichotomy would be neither healthy nor sustainable over the long term. If the host countries do not manage the anticipated economic gains for the benefit of their populations, BP and its Partners could be exposed to criticism, warranted or not, for having failed to help the region capitalize on a historic opportunity while exporting resources and related profits for the benefit of the project partners and consumers in industrialized nations.
The Panel fully recognizes that BP and virtually all of its partners are private-sector actors, and that many of the benefits that are expected to flow from development of Caspian oil and gas can only be secured through sovereign action by the governments of the host countries. At the same time, the Projects will inevitably have a defining impact on the economic and social development of the region, and BP and its partners have appropriately recognized that they are and will remain central actors in that process over the life of the Projects. As such, in the Panel’s view, they have the opportunity and, in the Panel’s view, they should contribute positively to the development of the region. More specifically, the Caspian Projects provide BP with an opportunity to develop a new model or template for large-scale, extractive-industry investments by major, multinational enterprises in developing and transition countries. In this Interim Report, the Panel offers a range of recommendations that the Panel hopes will assist BP in achieving this goal. This Executive Summary highlights and
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summarizes five broad areas which, in the Panel’s view, merit special consideration and
attention.
Sustainable Development via Creation of Caspian Development Fund
The Panel discusses and offers a number of recommendations for
sustainable investments in the region through support by BP and others for initiatives
above and beyond the Projects. BP has taken and should continue to take concrete steps
to ensure that the benefits from the more than $20 billion invested in the Projects are shared widely and that average citizens in Azerbaijan, Georgia and Turkey, particularly along the pipeline routes, are able to see visible improvements in their lives as a result of the Projects. If BP plays a role, together with the governments of the three countries, in producing such benefits, it will truly have developed a new model for large-scale, extractive industry investments in developing countries.
BP should be commended for launching three separate investment programs in which it and its partners will invest tens of millions of dollars in community,
environmental and social projects over the next few years. In its Regional Review, BP
has articulated a rationale for such investments. BP and its Partners have already funded
important projects through their Community Investment Program and have solicited proposals through the Environmental Investment Program. The Community Investment
Program’s grants, for example, seek to enhance community mobilization, strengthen
healthcare and expand micro-finance in Azerbaijan and Georgia. These programs are important and should have a positive impact in the region.
The Panel recommends that BP significantly expand the funding, scope and time horizon of its supplemental investments in the region. Specifically, the Panel,
recognizing the need for an integrated, holistic and regional approach, recommends that
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BP create a vehicle that combines BP’s community, social and environmental investment
funds going forward. The Panel also recommends that BP encourage other private sector
entities and public development agencies to contribute to such a initiative, which might
take the form of a Caspian Development Fund. Contributions by other parties will ensure
that the Caspian Development Fund enjoys broad-based support and leverages the
resources and skills of development agencies active in the region. The Caspian
Development Fund could operate as a non-profit foundation that would oversee all
investments by BP in sustainable development in the three countries and serve as a
repository for other donations and as a facilitator of public-private partnerships.
In order to give the Caspian Development fund its maximum long-term impact, the Panel recommends that BP announce a clear commitment to investing in sustainable development in the Caspian region as a whole; that it extend this commitment
beyond the construction period and to the full lifespan of the Caspian Projects; and that
BP identify a secure, dedicated, long-term funding stream – based, for example, on the revenue generated per unit of oil and gas throughput and/or production over the life of the
Projects – sufficient to meet this commitment and to make a lasting impact on the region.
The Panel further recommends that BP try to leverage its investment by partnerships with
other international development institutions active in the region. The Panel also
recommends that BP structure its investment in sustainable development with a view
towards building the infrastructure – both physical and human – that will sustain foreign
direct investment and domestic economic growth over the long term. In addition, the
Panel recommends that the Caspian Development Fund prioritize and focus on sectors
and skill sets that could produce the greatest sustainable impact. These areas include
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agriculture and tourism, which, according to a number of experts, are the non-energy
related economic sectors most likely to produce economic growth in Azerbaijan and
Georgia, and policy reforms in the domestic energy and banking sectors. The Panel also
recommends that the Caspian Development Fund target projects that will expand access
to education, strengthen civil society and enhance opportunities for and the skill sets
among small-and medium-size enterprises in Azerbaijan and Georgia. In our next report,
we will recommend ways the fund can be used in Turkey.
Strengthening Support to SMEs
It is the Panel’s view that BP’s support for small- and medium-size enterprises (SMEs) is critical for the development of the economies in the host countries.
BP has taken a number of important steps to ensure that SMEs benefit through subcontracting opportunities and through skills and technical development. In particular, the Panel applauds BP and its Partners for creating the Enterprise Center in Baku,
through which local suppliers can identify contracting opportunities with the Projects and work to understand better the technical standards required by BP and its subcontractors.
The Panel offers a number of recommendations to strengthen SMEs, including: working with development organizations to provide technical assistance and other programs that target banking functions potentially benefiting SMEs; exploring opportunities to fund and/or support credit facilities that could be established by regional development organizations for the benefit of SMEs; increasing efforts to use non-technical SMEs whenever possible to satisfy project needs; and identifying procurement opportunities for
SMEs outside of the energy sector.
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Improving Transparency and the Free Exchange of Ideas
It is the Panel’s view that BP can have an important and positive impact on improving transparency and expanding the free exchange of ideas in the countries in which it has invested. In addition to funding and supporting local non-governmental organizations, the Panel offers a number of recommendations to BP in terms of publishing data on revenues that will accrue from the Projects to the governments of
Azerbaijan and Georgia. The Panel also recommends in Section IV a number of broader initiatives BP might undertake to help the governments of Azerbaijan and Georgia link revenue management to poverty reduction and other development objectives.
It is the Panel’s view that the greater the transparency with which BP and its partners inform the public about the project-oriented revenues that will accrue to the host governments, the more potentially accountable the governments will be with regard to the expenditure of such funds. Transparency will also enhance the dialogue and debate about the appropriate future uses of those revenues. The Panel commends BP’s decision as operator to publish estimates of various project-related payments to the host governments, as well as the decision to publish, including in local languages, the
Production Sharing Agreements, Host Government Agreements and the
Intergovernmental Agreement governing all or part of the Projects. The Panel recommends that BP take the next step with the “publish what you pay” principle by preparing and making publicly available, in English and local languages, a detailed and easily understood annual statement of (a) the specific payments – by category and amount – that are made to the host governments and their various agencies, and (b) the overall estimated earnings – again by category and amount – that the Projects generate for the host governments and their various agencies, including revenue from the sale of
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the state’s share of oil and gas, transit fees, grants, taxes and other receipts. Publishing a
detailed and easily understood annual statement of the payments and earnings from the
Projects would be a major step for BP and its partners toward creating a model for large-
scale extractive industry investments in developing countries, and will reinforce the
broader, multilateral Extractive Industries Transparency Initiative that BP has publicly
supported and the government of Azerbaijan has indicated an intention to join.
Routing Considerations and Expanding Environmental Monitoring Activities
The Panel recommends a number of external monitoring activities, including in the Borjomi region where controversy exists surrounding the routing of the pipeline. The report in Section V outlines the process by which BP and its partners selected the ultimate pipeline corridor. It is the Panel’s view that there were shortcomings in the process for selecting the ten-kilometer corridor of interest in Georgia.
Since the Government of Georgia was concerned about the security of certain routes, BP felt compelled to take certain routes off of the table, as noted in the April 2002 BTC
Project ESIA Disclosure document. Neither BP nor the Panel is in a position to evaluate the security assessment made by the Government of Georgia. Only the Government of
Georgia can make judgments on such security issues. In the Panel’s view, the impression was created that the BTC pipeline corridor was routed primarily on the basis of geotechnical, environmental and social criteria when, in fact, security considerations appear to have been a principal factor driving the routing decision. It is also the Panel’s view that, provided the over-riding political constraints on corridor routing are accepted, it is likely that the route that was ultimately selected would have been chosen even with a more fulsome debate over the options.
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BP and its partners have pledged to implement a number of important mitigation and oil spill prevention mechanisms in the Borjomi region to prevent environmental damage in the unlikely event of an oil spill. The Panel recommends that
BP publish and broadly communicate the mitigation measures it plans to put in place and seek input from the community, the Georgia Academy of Sciences and other experts on additional mitigation initiatives that may be appropriate.
In addition, the Panel recommends that BP support the creation of a community monitoring mechanism to track the potential effects of the pipeline in the
Borjomi region. The monitoring panel presumably should consist of both experts and lay persons from Borjomi and other regions, including Members of the Georgia Academy of
Sciences. The Panel also recommends that BP involve local government and citizens in its oil spill response plan and develop a program to train and equip the local community in Borjomi to respond to a potential oil spill.
Clarify Governing Legal Regime
Section III of the Interim Report discusses the legal regime that BP and its
partners in BTC and SCP have created with the host governments to govern key standards, and enforcement of such standards, by which the pipelines are to be constructed and operated. This legal regime was understandably established to provide greater certainty for the investment by BP and its partners given the stage of development of various legal institutions in the host countries, particularly in Azerbaijan and Georgia.
Nevertheless, the governing legal regime has caused some controversy, particularly in the
NGO community, partially because, in the Panel’s view, it is complex and difficult to understand. The Panel recommends that BP work with the host governments to clarify a number of critical issues in the legal regime, including: the extent to which host
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governments and third parties have access to local courts or local administrative remedies
to enforce environmental, health, safety and other standards on project activities; the
environmental, health and safety standards that currently govern project activities,
recognizing that the Projects have adopted a dynamic benchmark of international and
European Union practice; and how and by whom the environmental, health and safety
standards that will govern project activities going forward are to be determined.
Monitoring Social Impacts
In the Panel’s view, ongoing monitoring of social impacts of the pipelines, as well as the establishment of clear grievance procedures, are important elements of effective Resettlement Action Plan implementation and community relations along the pipeline corridor. Concerns and disputes inevitably arise during large-scale construction projects over a variety of issues, and local communities should have an effective means of communicating with BP and its Partners. The Panel recognizes that BP already has established certain monitoring and grievance mechanisms in cooperation with the construction contractors. The Panel recommends that these monitoring mechanisms, both during and post-construction, directly involve civil society including local community representatives. The Panel also recommends that an external monitoring panel be established promptly in accordance with RAP procedures. Finally, the Panel recommends that BP remain engaged in the grievance process and not simply delegate responsibility to subcontractors to ensure that disputes are resolved in a timely, fair and satisfactory manner.
* * * * The Panel welcomes and invites comments on this Interim Report and the
Panel’s work plan from interested parties and looks forward to working with BP, NGOs,
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government agencies, international financial institutions and other interested parties as the Panel continues its work on this important initiative.
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Introduction
Section II
Introduction
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Introduction
The Caspian Development Advisory Panel (CDAP or the Panel) was
commissioned by Lord John Browne, Group Chief Executive Officer of BP, in January
2003 as an independent, external advisory body to provide Lord Browne and BP with objective advice on the economic, environmental and social impacts of the Baku-Tbilisi-
Ceyhan oil pipeline (BTC pipeline) and other related BP activities in Azerbaijan, Georgia and Turkey. These activities, referred to as the “Caspian Projects,” include the upstream development of oil and natural gas reserves in the Caspian Sea and the supply of natural gas to Turkey and other markets through the Southern Caucasus Pipeline (SCP pipeline).
The members of the Panel, which was established with a three-year mandate, include Jan
Leschly (chair), Stuart Eizenstat, Jim MacNeill and Mohamed Sahnoun.1
A. The Panel and Its Mandate
Through this first Interim Report on Azerbaijan and Georgia and
subsequent reports, the Panel will provide Lord Browne and BP with recommendations
and suggestions to help BP develop the Caspian Projects into a world-class model and to
ensure that these investments will leave a positive, lasting legacy in the region. As such,
the Panel’s work to date has focused not only on the potential economic and social
benefits of the Caspian Projects in Azerbaijan, Georgia and Turkey, but also on the steps
BP might take to assist the host countries in realizing these benefits in the broadest and
most sustainable manner possible. The Panel also has considered the social, environmental and economic impacts of the Caspian Projects and the approaches BP has
taken to date and could consider in the future to mitigate potential negative impacts. The
Panel has and will continue to focus on the manner in which BP engages, consults and
1 Biographical information for the CDAP members appears at Appendix C.
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Introduction
partners with the communities in which it operates as well as the impacts, positive or
negative, of such engagement. The Panel has considered and discusses in this Interim
Report investments that BP might undertake in the region to improve the lives of people who will be affected, either directly or indirectly, by the Caspian Projects.
The historic BP-led investments in the region, with a lifetime that may
exceed 40 years, represent the largest ever single foreign direct investments in
Azerbaijan, Georgia and Turkey. BP’s investments in the Caspian Projects come with
concomitant responsibilities to contribute to positive change in this important region of
the world. In the Panel’s view, the Caspian Projects provide BP with an opportunity to
develop a new model or template for large-scale, extractive-industry investments by
major, multinational enterprises in developing and transition countries. This Interim
Report seeks to advance this vision.
In establishing and funding the Panel, Lord Browne committed to granting
the Panel complete independence in the development, planning and execution of its work
plan. BP has fully honored this commitment, including through the timely publication of
this Interim Report free of any control by BP over the Report’s content.
BP officials have provided the Panel and its consultants with numerous
briefings, materials on economic, social and environmental issues associated with the
Caspian Projects and logistical support during the Panel’s nine-day visit to Azerbaijan
and Georgia in March 2003. The Panel, however, set its own agenda and met with
government officials, non-governmental organizations (NGOs), academics and other
interested parties without the presence of BP officials.
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By the time the Panel was established in early 2003, an enormous amount
of project-related environmental and social analysis already had been undertaken by BP,
government agencies, NGOs and other experts. The Panel therefore decided that it would
not (and in the time available could not) conduct a de novo environmental and social
impact assessment of the Caspian Projects. Rather, it concluded that its proper role
would be to:
• Consult extensively with the broadest possible range of parties with an interest in the economic, social and environmental aspects of the Caspian Projects;
• Review relevant material produced by BP, NGOs, academics and other interested parties;
• Review the process and approach adopted by BP in conducting and producing its economic, environmental and social analyses and environmental and social impact statements;2 and
• Identify a number of priority issues and provide commentary and recommendations on them.
The Panel retained independent consultants, reporting solely to the Panel, to assist with its analysis of key environmental and social issues.3 These experts reviewed all of the ESIA documentation. In May 2003, and with the Panel’s direction, the consultants undertook a separate site visit to Azerbaijan and Georgia. The Panel also
2 BP has produced Environmental and Social Impact Assessments (ESIAs) for ACG Phases 1 and 2, the BTC pipeline, Shah Deniz Stage One Development and the SCP pipeline. These documents are available at http://www.caspiandevelopmentandexport.com. An ESIA for ACG Phase 3 is underway. 3 The Panel retained Professor Richard Fuggle of the Department of Environmental and Geographical Science, University of Cape Town on environmental issues, and Professor Daniel Bates of the Department of Social Anthropology, Hunter College of the City University of New York on social issues.
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was assisted by country advisors4 who were identified by BP as an independent resource
principally to assist the Panel in the development of an agenda and focus for the site visits
to the region.
The Panel early on established an open, accessible and transparent
approach to its work plan, including the publication of its terms of reference.5 In keeping
with that goal, the Panel met and consulted with dozens of government agencies,
multilateral development banks, local and international NGOs, academic institutions and
private sector interests.6 In addition, the Panel established a website (www.caspsea.com)
and e-mail address ([email protected]), allowing interested parties to submit
comments and information directly to the Panel, independent of BP. The Panel has
encouraged and accepted invitations to meet with any and all interested groups,7 and has consulted extensively with NGOs actively working on the Caspian Projects.
The Panel originally planned to include Turkey in its March 2003 site visit, but will now visit Turkey in September 2003 since the March visit coincided with
4 The Panel’s country advisors are: Mr. Marco Borsotti, UNDP Resident Representative and Resident Coordinator for the United Nations system (Azerbaijan); Ambassador Alexander Rondeli, President of the Georgian Foundation for Strategic and International Studies and Professor of International Law and International Relations, Tbilisi State University and Mr. Ilter Türkmen, member of the Turkish-Greek Forum, the Turkish-Armenian Reconciliation Commission and a columnist at Hürriyet newspaper. 5 Terms of Reference can be found at Appendix B and www.caspsea.com/terms.html. 6 A list of the groups and individuals consulted to date appears at Appendix A. 7 To assist in its work, the Panel established a Secretariat based in Washington, D.C. The Secretariat, which consists of Peter Flanagan, David Marchick, Marney Cheek and Elizabeth Snodgrass of Covington & Burling, provides both substantive and logistical support and works with the Panel to facilitate meetings and otherwise fulfill the Panel’s mission. Over the past few months, the Secretariat also held a number of independent meetings with government officials, NGOs and other interested parties, conducted extensive research on project-related activities, and provided policy and procedural recommendations to the Panel.
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the commencement of the war in Iraq. Accordingly, this Interim Report provides the
Panel’s initial impressions, conclusions and recommendations on key issues in
Azerbaijan and Georgia. The Panel’s next report will address similar issues in Turkey, as
well as certain cross-cutting regional issues that the Panel will only be able to analyze
fully after visiting all three countries. These cross-country issues include security and human rights in the region. In addition, the Panel will continue to study and develop recommendations on a number of subjects in this Interim Report.
The Panel’s Interim Report is organized in five sections addressing the following:
• The various agreements constituting the legal framework for BTC pipeline and certain questions that have been raised about their impact on national standards and rights in the host countries;
• The economic impacts of the Caspian Projects, including revenue impacts for the governments of Azerbaijan and Georgia and related revenue-management questions;
• The environmental impacts of the Caspian Projects, from upstream development to pipeline-routing considerations, and the efforts of BP to manage and mitigate any potential negative environmental consequences;
• The social impacts of the Caspian Projects, including those related to land acquisition; and
• Opportunities for BP to support sustainable development in the region through strategic investments in partnership with local and regional actors.
B. Overview of the Caspian Projects
As mentioned above, BP’s commercial engagement includes the
development of the Azeri-Chirag-Gunashli (ACG) oilfield8 off the coast of Azerbaijan,
8 ACG is being developed by the Azerbaijan International Oil Company (AIOC). Parent companies of AIOC include: BP (34.13%); State Oil Company of the Azerbaijan
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the Shah Deniz gas field,9 also off the coast of Azerbaijan; and the BTC and SCP
pipelines. The BTC pipeline10 is a major focus of this Interim Report. It will eventually
transport up to 1 million barrels a day from the ACG oilfield through Azerbaijan, Georgia
and Turkey to a terminal at Ceyhan in southeast Turkey on the Mediterranean Sea coast.
The SCP pipeline,11 running parallel to the BTC pipeline through Azerbaijan and Georgia
and terminating at the Turkish border, will transport gas from the Shah Deniz field to the
Turkish market. The Stage 1 design capacity of SCP is 7.3 billion cubic meters of gas
per year, but the ultimate design capacity of the pipeline is nearly three times that
volume. Because the BTC and SCP pipelines run through the same construction corridor, many of the environmental and social issues raised by the two projects are similar, if not
identical.
BP is the lead investor and operator of the ACG oilfield and BTC pipeline.
BP and Statoil are the lead investors in the Shah Deniz gas field and SCP. Although each of the development and transport projects is financed by a different consortium, for purposes of this Interim Report, references to “BP and its Partners” includes all shareholders in the ACG, Shah Deniz, BTC and SCP projects.
Republic (SOCAR) (10%); Unocal (10.28%); INPEXl (10%); Statoil (8%); ExxonMobil (8%); TPAO (6.75%); Devon Energy (5.6%); Itochu (3.92%); and Amerada Hess (2.72%). 9 Partners in the Shah Deniz development project include: BP (25.5%); Statoil (25.5%); SOCAR (10%); LukAgip (10%); NICO (10%); TotalFinaElf (10%); and TPAO (9%). 10 The BTC sponsor group includes: BP (30.1%); SOCAR (25%); Unocal (8.9%); Statoil (8.71%); TPAO (6.53%); Agip (5%); TotalFinaElf (5%); Itochu (3.4%); INPEX (2.5%); ConocoPhillips (2.5%); and Amerada Hess (2.36%). 11 Partners in the SCP pipeline include: BP (25.5%); Statoil (25.5%); SOCAR (10%); LukAgip (10%); NICO (10%); TotalFinaElf (10%); and TPAO (9%). These are identical to the investors in the Shah Deniz gas field.
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C. Strategic Importance of the Caspian Projects
In the Panel’s view, the development of the ACG and Shah Deniz fields,
along with the construction of the BTC and SCP pipelines, are projects of immense
strategic significance, both for the host countries and for the world at large. For
Azerbaijan and Georgia, the development of Caspian energy resources represents an
opportunity to reduce their reliance on imported gas and oil, to accelerate economic
development and to reinforce nascent democratic institutions. For Turkey, the pipelines
bring new energy supplies with a routing that avoids the Bosphorus Straits, thereby
reducing potential tanker traffic through an environmentally-sensitive and culturally
significant area.
The development of an export route through Georgia to Turkey will give
Azerbaijan an additional export route to send its oil and gas to international markets. The
exploitation of ACG and Shah Deniz will generate revenues that could be invested in
upgrading the country’s infrastructure, reducing poverty and improving the quality of life
of the Azerbaijani people. Moreover, the large-scale presence of major international oil
companies could encourage the emergence of service industries outside of the petroleum
sector, effectively multiplying the economic benefit of the initial foreign investment. The
need to mediate the requirements of such diverse and sophisticated industries could
become a major force for administrative reform, encouraging Azerbaijan to modernize its
regulatory apparatus and to make government generally more responsive and transparent.
The impact on Georgia is also potentially significant. The SCP pipeline will give Georgia access to a new source of natural gas, freeing it from total reliance on
Russian supplies that have become increasingly erratic in recent years and enhancing the country’s economic independence. Revenues earned from pipeline transit fees and, to a
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Introduction lesser extent, procurement and employment opportunities could be important forces in the strengthening of market institutions. In the Panel’s view, however, the economic impact of the BTC and SCP pipelines in Georgia may not meet expectations with respect to employment and procurement, and public expectations of the direct economic benefits for local companies and workers may be unrealistic. BP needs to carefully manage expectations by indicating the limited number of jobs the Projects will directly create over the long term.
Caspian energy development also has a wider strategic significance.
Recent discoveries of oil and gas in the Caspian region rank among the most significant finds of the last 30 years. Taking account of the major fields off the coast of Kazakhstan in the northern Caspian, the region has the potential to be a significant contributor to world oil and gas needs over the next few decades. In bringing a significant part of these reserves to world markets, while at the same time reducing the possibility of catastrophic environmental and economic damage as a result of a tanker spill in the Bosphorus Straits, the Caspian Projects could provide world markets with meaningful new sources of energy.
The international community also has a strong interest in the regional economic development that the Caspian energy projects could promote. The recent military actions in Afghanistan and Iraq and the continuing conflict in Chechnya are powerful reminders that the Caspian sits at the heart of a volatile region. In Azerbaijan and Georgia, respectively, conflicts in Nagorno-Karabakh and over the status of
Abkhazia highlight the threat posed to regional peace by continuing inter-ethnic and regional rivalries. Both conflicts have resulted in significant numbers of internally
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Introduction
displaced persons (IDPs). The Panel was particularly struck by the massive number of
IDPs in Azerbaijan, imposing a significant burden on the Azerbaijani government. The political and economic development accompanying successful exploitation of the
Caspian’s energy resources could play an important role in averting such threats, transforming the Southern Caucasus from an area of potential instability into an exporter of security to neighboring countries.
While the Caspian Projects potentially will bring social and economic benefits to the people of Azerbaijan and Georgia, there are serious challenges that may impede sustainable development in the region. In particular, oil and gas wealth can be a development “curse” if revenues are coupled with weak governance structures, a lack of transparency in government functions and underdeveloped civil societies. For such countries, energy wealth has the potential to inhibit rather than increase growth and development. Azerbaijan displays a number of the conditions that frequently are associated with the oil and gas “curse” and Georgia faces similar risks for somewhat different reasons. Indeed, in making the transition to market economies both countries share certain broader, related challenges to attaining the potential economic benefits from the BP-led Caspian Projects.
As BP implements programs designed to bring social and economic benefits to the region, the success of these programs will depend, at least in part, on progress towards improved governance, the development of the countries’ non-oil economies and the strengthening of civil society.
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Governing Legal Regime
Section III
Governing Legal Regime
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Governing Legal Regime
In this section, the Panel briefly discusses the legal regime governing the
BTC and SCP pipelines, notes a number of ways in which this regime is unclear and
recommends both clarifications and actions to address particular concerns about the
impact of the governing legal regime on human rights.
A. Overview of the Governing Legal Regime
The BTC/SCP pipelines have been established and will be largely regulated by a network of agreements among the three host countries on the one hand and between the host countries and BP and its Partners on the other. Each of the Agreements described below is subordinate to the constitutions of the three host countries. Two Inter-
Governmental Agreements (IGAs) (one for each of the BTC and SCP Projects) among the Governments of Azerbaijan, Georgia and Turkey sit at the top of a hierarchy of agreements. Annexed to each IGA are Host Government Agreements (HGAs), one between each host country and the consortia for each pipeline. According to Appendix 1 of the HGAs, any project-related agreement or document entered into by any state authority of a host government and BP and its Partners qualifies as a Project Agreement, thereby becoming part of the prevailing legal regime governing the projects.
As a result, for example, the commitments undertaken by BP and its partners in the various Environmental and Social Impact Assessments (ESIAs), each of which was approved by the host governments, are obligations that the host governments can enforce. Similarly, the “ongoing activities” required by the Georgian Ministry of the
Environment for approving the pipeline route through Georgia in November 2002, which were explicitly designated a Project Agreement, are enforceable obligations.
The HGAs also contain a provision authorizing arbitration of disputes between the host governments and any participant in the projects and provide, in
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Appendix 3, that disputes concerning implementation of the environmental commitments
in various Project Agreements shall be resolved in accordance with the arbitration
provision of the HGA.
The legal regime governing the projects is complex and hard to
understand, as it rests upon the interaction between and among, e.g., a range of international standards and best practices within the petroleum industry, norms generally applied within the European Union (or, in the case of Georgia, the Netherlands and
Austria for certain purposes), national law in the host countries, obligations in the ESAPs and other Project Agreements and the policies of the International Financial Institutions.
Among other areas, questions have been raised to the Panel by NGOs about (1) the extent to which the legal regime displaces national health, safety, environmental and other standards by international or European standards and by practices prevailing in the international petroleum pipeline industry; (2) the extent to which the legal regime might require claims against the project companies to be heard in international arbitration rather
than in local fora; and (3) the so-called “economic equilibrium” provision, which could
give rise to an obligation by a host country to compensate the project consortia for any
losses associated with the application of certain health, safety, environmental or other
standards that are more stringent than those standards to which the consortia have
otherwise agreed.
B. Clarification of Legal Standards and Remedies
The Panel recognizes that the European and international environmental,
health and safety standards that are referenced in the Project Agreements are likely to be
as high or higher than those currently in force in the three transit States. The Panel
understands that the international and European environmental, health and safety
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standards incorporated into the projects’ legal regime are not fixed but will evolve over time, serving as a dynamic benchmark for the projects. The Panel further understands that any losses or increased costs associated with the application of higher standards as a result of the evolution of these generally applicable standards will not give rise to any obligation to pay compensation under the “economic equilibrium” provision of the
HGAs. The Panel welcomes the Joint Statement on the Baku-Tbilisi-Ceyhan Pipeline
Project issued by the Implementation Commission12 and BTC on May 16, 2003, which
clarified that nothing in the BTC project’s legal regime would “exempt the project from
compliance with evolving world-class environmental standards and practices” and rejected any interpretation of the legal regime governing the projects that would require
the breach of human rights or prohibit effective protection by the host countries of human
rights. The Panel is also aware of the large amount of information that BP and BTC have
produced and published as part of the IFC and EBRD loan disclosure processes,
including a matrix of the environmental standards to which the projects are subject.
These and other project documents are, however, dense and technical, and
some uncertainty may persist about the precise content of the standards that govern
project activities and about the remedies for host governments and third parties to enforce
those standards. In view of the confusion that has surrounded elements of the legal
regime for the projects, and building on the positive developments of the Joint Statement
and the disclosure documents, the Panel recommends that BP, working with its
Partners, the Implementation Commission and others as appropriate:
12 The Implementation Commission is established in the IGA and consists of two representatives from each host State.
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1. Clarify the extent to which host governments retain access to local courts or local administrative remedies to enforce environmental, health, safety and other standards on project activities, including the interaction of the “economic equilibrium” provision with evolving national standards;
2. Clarify and confirm that third parties adversely affected by project activities have full access to local courts, even for claims relating to environmental, health and safety issues that are addressed in the HGAs and other project agreements;
3. Further clarify the scope and content of environmental, health and safety standards that currently govern project activities; and
4. Clarify how and by whom the environmental, health and safety standards that will govern project activities going forward are to be determined, as international standards and best practices within the petroleum pipeline industry and standards generally applied in the member states of the European Union (or, with respect to Georgia, the Netherlands and Austria as applicable) evolve from time to time.
In the Panel’s view, these points could usefully be addressed in a plain-language summary of the IGAs, HGAs and other relevant Project Agreements.
The Panel appreciates the uniqueness of the multi-jurisdictional investments at issue here and the desirability of establishing uniform cross-border rules to govern these major, long-term investments in developing countries with different and evolving legal regimes. Nevertheless, 40 years is a long time for domestic environmental, health and safety norms effectively to be displaced by international or
European standards. The Panel therefore recommends that from time to time, BP, working with its Partners, the Implementation Commission and others, consider applying to the Project any appropriate national standards that are more stringent than international petroleum pipeline industry standards or those generally applied in the
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Governing Legal Regime member states of the European Union, without this giving rise to a claim for compensation under the economic equilibrium provision.
The Panel intends to revisit these issues and recommendations if and when a plain-language summary or other clarification is made available by BP.
C. Human Rights Concerns
The Panel has reviewed Amnesty International’s recent report “Human
Rights on the Line.” The Panel plans to review human rights issues more fully in its next report, once it has completed a site visit in Turkey and undertaken additional analysis.
Nonetheless, some of Amnesty International’s recommendations warrant immediate comment.
For example, the Panel endorses Amnesty International’s recommendation that the parties confirm that nothing in the legal regime will make it more difficult for the host governments to satisfy international human rights obligations. The recent Joint
Statement, which reconfirms the parties’ commitment to promoting respect for and compliance with human rights principles set forth in a number of international human rights agreements, is an important step forward. However, the Joint Statement addresses only the BTC pipeline. The Panel recommends that a similar statement be made to apply to the SCP pipeline as well. The Panel also recommends that BP work with its project partners, the host governments, Amnesty International, other NGOs and others as appropriate to develop a document specifying and formalizing the project partners’ and host countries’ human rights commitments.
Amnesty International also recommends additional steps that BP and its
Partners could undertake to facilitate respect for and protection of human rights.
Specifically, Amnesty International recommends that BTC promote compliance with
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international human rights standards through its contracts with subcontractors and
security personnel and by working with local authorities to ensure that personnel assigned
to protect the pipeline are appropriately screened.13 In addition, Amnesty International
recommends that security contracts/protocols, with the exception of operational details
that could endanger people’s lives, are published and accessible to the general
population.14 Amnesty International also recommends that the consortium make clear to
security personnel that human rights violations will not be tolerated and that the BTC
consortium engage with security authorities and civil society in a systematic and ongoing
dialogue to resolve conflicts and grievances that may arise from the policing of the pipeline.15 The Panel endorses these recommendations and further recommends that
BP work with Amnesty International and other NGOs to implement these steps as the
security framework is negotiated over the coming months.
13 Amnesty International, Human rights on the line: The Baku-Tbilisi-Ceyhan pipeline project 27 (2003), available at http://www.amnestyusa.org/business/humanrightsontheline.pdf. 14 Id. 15 Id.
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Section IV
Economic Impact
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Economic Impact
In this Section, the Panel considers the range of potential economic
benefits that could accrue from the BP-led projects in the Caspian region, the challenges
that could inhibit or preclude broad-based realization of these anticipated benefits and a
number of concrete steps that BP and its Partners could take (or continue to take) to assist
Azerbaijan and Georgia in managing the anticipated gains over the life of the projects in
ways that benefit their populations as a whole.
In the Panel’s view, the prospects for broad-based and sustainable
economic development as a consequence of project activities must inevitably be
considered in the light of the largely disappointing record of economies dominated by the
development or broader utilization of energy resources. As observers and academics
have noted,16 natural resource (and particularly oil and gas) wealth can be a development
“curse” if such abundance is coupled with weak or underdeveloped governance structures, a lack of transparency in government functions, underdeveloped civil societies
and broad economic needs. Countries with these sorts of characteristics often find that
energy wealth has the potential to inhibit rather than increase growth and development.
Specifically, energy-driven wealth could trigger inefficient spending, inflation and
unbalanced growth, leaving the non-oil sector of the economy undeveloped and
potentially exposed to even increased debt service burdens.
Azerbaijan displays a number of the conditions that have been associated
with the oil and gas “curse,” and Georgia faces similar risks for somewhat different
reasons. Indeed, in making the transition to market economies both countries share
certain broader, related challenges to realizing the full potential economic benefits of the
16 See, e.g., Evaluation of the World Bank Group’s Activities in the Extractive Industries, Background Paper, Jan. 21, 2003.
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Caspian Projects. For instance, both countries suffer from and struggle with corruption, and both countries would benefit from more balanced economic growth and diversification in areas such as agriculture and tourism. A significant portion of the population in both countries lives in poverty – against a backdrop of rising expectations
of the economic benefits to be yielded from the development and/or transit of energy resources.
If Azerbaijan and Georgia are unable to realize the full range of
anticipated benefits from the projects, BP and its Partners could be exposed to criticism,
warranted or not, for having failed to help the region capitalize on a historic opportunity.
The Panel recognizes that BP and virtually all of its Project Partners are private-sector
actors, and that many of the benefits that are expected to flow from development of
Caspian oil and gas can only be secured through sovereign action by the governments of
the host countries. Moreover, the Panel understands that the management and allocation
of oil and gas revenues and transit fees are fundamentally government functions, as is the
development of the economic and social policies in Azerbaijan and Georgia. At the same
time, the projects will inevitably have a defining impact on the economic and social
development of the region, and BP and its Partners have appropriately recognized that
they are and will remain central actors in that process over the life of the projects. As
such, they have the opportunity and, in the Panel’s view, the obligation to contribute
positively to the development of the region.
A. Anticipated Income Flows and Management
1. Azerbaijan
In Azerbaijan, the national government and the state oil company
(SOCAR) both stand to earn significant sums from the project-related development and
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Economic Impact export of oil and gas. Over the life of the projects, these anticipated earnings can be grouped into four categories:17
• First, approximately $390 million in payments associated with granting the upstream rights to develop the ACG and Shah Deniz resources (e.g., bonus payments and acreage fees from the ACG and Shah Deniz Production Sharing Agreements (PSAs));
• Second, between $21 and 38 billion by 2024 in oil sale revenue (depending on the price of oil) by 2024;18
• Third, BTC transit revenues of $600 - $700 million by 2024, plus anticipated BTC profit of $1.8 billion earned by SOCAR as a result of its 25% interest in the pipeline; and
• Fourth, revenue from Shah Deniz and the SCP pipeline of approximately $500 million to SOCAR as an economic shareholder in the project and approximately $3 billion to the Azerbaijani government.
A significant portion of the oil and gas revenue that will flow to the government of Azerbaijan will be payable into the State Oil Fund of the Azerbaijan
Republic (SOFAZ or “the Fund”). SOFAZ was established in late 1999 to accumulate and manage revenues from the implementation of oil and gas exploration and development agreements. Under the presidential decree establishing SOFAZ, the Fund’s assets will accumulate from the sale of oil and gas owned by the Azerbaijani government, bonus and acreage payments and certain other amounts from joint activity with foreign companies.19 By May 2003, SOFAZ assets already exceeded $900 million, an amount
17 See Regional Review (Feb. 2003) at 87-89. 18 This includes so-called “profit oil” for both SOCAR and the government of Azerbaijan. Profit oil is distributed after the “cost recovery oil,” which covers investors’ capital and operating costs. The profit oil is split between the international investors in AIOC (including SOCAR as a project participant) and the government of Azerbaijan. 19 Presidential Decree No. 579: Procedures for Formulation and Implementation of Annual Receipts and Expenditures Program (Budget). By contrast, revenue from older,
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expected to multiply some six- to eight-fold (depending on future oil prices) before peaking in 2010.20
According to the Fund’s organizing principles, SOFAZ expenditures
should be directed toward national projects and infrastructure facilities of strategic
importance to Azerbaijan’s social and economic development, and to the development
and competitiveness of the economy’s non-oil sector. Specific expenditure plans are
formulated by the Fund’s management, consisting of a supervisory council and Executive
Director both chosen by the President. To date, pursuant to Presidential decree, these
expenditure plans have broadly tracked the State investment policy and the government’s
anti-poverty strategies that have been developed with the support of the international
financial institutions. The Azerbaijani government had also announced plans to use a
portion of SOFAZ assets to help finance SOCAR’s equity interest in the BTC pipeline.
The IMF reportedly agreed to a variation of this plan when the government decided to
finance the equity purchase principally with pre-SOFAZ oil bonus payments that were
held at the Central Bank and decided to lodge its ownership interest in BTC with the
Ministry of Economic Development (rather than SOFAZ).
In May 2003, after extended discussions with the IMF, the Parliament adopted fiscal reforms designed to consolidate the budgets of SOFAZ and the central government.21 Most notably, the amendments call for Parliamentary approval of the
SOCAR-administered fields, as well as taxes paid by SOCAR and foreign oil companies, flow directly to the state budget. 20 See IMF, Selected Issues and Statistical Appendix at 13, available at http://www.imf.org/external/pubs/ft/SCR/2003/CR03130.pdf. 21 See IMF Approves US$18 Million PRGF Disbursement to the Azerbaijan Republic and Requests for Waivers of Performance Criteria and Extension of
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deficit and expenditure ceilings of a single consolidated budget consisting of both the
traditional state budget and various off-budget funds including those of SOFAZ.
Discretion over the specific, project-level uses of SOFAZ assets will generally remain
with the Fund (as dictated by Presidential decree), but Parliament will have new authority
to control the aggregate annual expenditure limit for such assets. It is the Panel’s
understanding that the IMF and the government of Azerbaijan have agreed to require that
all oil fund expenditures be tracked through a consolidated state budget. The Panel hopes
that the IMF and the Government of Azerbaijan will insure that expenditures from the
revenue will be allocated with the maximum amount of transparency.
To date, although the expenditure priorities for SOFAZ have been set by
Presidential decree, there has not been a binding link between the Fund’s stated
expenditure policies and the government’s anti-poverty and other economic strategies
that have been developed with the support of the international financial institutions. This
includes, for instance, the Poverty Reduction Strategy framework that Azerbaijan
launched in the Fall of 2002 after extended discussions with international financial
institutions. That framework highlights policy reforms in key sectors needed to help
tackle the problem of poverty and foster sustainable development. In light of the role BP
played in the extended public dialogue that gave rise to the Poverty Reduction Program,
the company should be well-positioned to urge the Azerbaijani government to align the
expenditure policies governing SOFAZ formally and more closely with the State
Program on Poverty Reduction and Economic Development. Accordingly, the Panel
recommends that BP encourage the government of Azerbaijan, in cooperation with the
Arrangement (IMF Press Release No. 03/67) (May 15, 2003), available at http://www.imf.org/external/np/sec/pr/2003/pr0367.htm.
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Parliament, to develop and adopt an oil fund law that would formalize the general arrangements under existing Presidential decrees and establish binding expenditure policies and priorities for the Fund that are more closely aligned with existing poverty- reduction strategies.
Although the recent IMF-supported fiscal policy reforms are an important step, the mechanisms for Parliament and the public to participate in budgetary issues remain undeveloped. Indeed, the Panel understands that the budgets typically considered and approved by Parliament are short and highly aggregated. Moreover, the linkages between SOFAZ and the central budget process, including whether (and to what extent) the Oil Fund could be used to stabilize the budget process in the event of a negative external shock to energy prices, are less than clear. The changing price of oil will have a dramatic impact on the amount and timing of revenue flowing to SOFAZ, and the related challenges of simultaneously managing investment and expenditure strategies could be daunting. The project-evaluation challenges associated with developing the expenditure strategies for SOFAZ are equally daunting and require near-term capacity building and possibly technical support from the key international development agencies. The development agencies could take the lead in such an initiative, but BP would be well- positioned to provide financial support and perhaps technical guidance in connection with the effort. Accordingly, the Panel recommends that BP consider partnering with one of the international or regional development agencies to provide technical assistance to aid the operations of SOFAZ in areas such as forecasting, investment management and project appraisal.
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2. Georgia
Project-related revenue estimates for the government of Georgia are
considerably more modest because the government does not have an ownership interest
in the oil and gas that will be flowing through BTC and SCP. Rather, the Georgian government will earn BTC transit fees of approximately $600 to $900 million in total by
2024 as well as approximately $500 million in total fees from Shah Deniz and SCP in the period ending 2031.22 The agreements governing Shah Deniz and SCP grant the
government of Georgia the right to take 5% of the annual gas flow through SCP in lieu of
the SCP transit fee. Although the project-related revenue that the government of Georgia
is expected to earn is many times less than the funds that will flow to Azerbaijan, the
projected revenues from BTC alone could still amount to some 10-15% of the
government’s overall projected budget revenues.
The prospects for effectively leveraging the potential long-term benefits of
the projects for the Georgian society as a whole are clouded by weak governance
structures at the national level, deteriorating infrastructure and declining conditions
throughout the economy. During Panel interviews, corruption was repeatedly identified
as a key obstacle to organizing initiatives to manage or capitalize on anticipated project-
related benefits. The Panel also was briefed on the declining fortunes of many of
Georgia’s core strategic industries/assets (e.g., agriculture) as well as the effects of a
deteriorating energy grid and distribution system. Even well-intentioned efforts to
address the increasingly desperate state of the country’s physical infrastructure appear to be hampered or largely stymied by governance-related challenges.
22 See Regional Review at 88. At its peak, the BTC pipeline will generate $60 million in annual transit fees for the Georgian government.
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The government of Georgia has not established, or announced plans to establish, a dedicated fund to collect and manage the transit and other fees generated from the BTC and SCP projects. Revenues for the government of Georgia will be much smaller though more predictable than the revenue flows that are projected for Azerbaijan.
A number of the experts with whom the Panel spoke discouraged the notion of an oil fund for Georgia. The same experts, however, supported the development of new fiscal mechanisms to track and allocate the anticipated fees across the broader budget process.
The Panel fully recognizes that the decision of whether and how to implement such fiscal mechanisms is one for the government of Georgia to make as a sovereign actor, and that there are clear limits to what BP as a private corporation can do to affect the timing, nature or scope of such a step. The Panel also recognizes, however, that the BTC and
SCP pipeline projects could have an important impact on the overall health of the
Georgian economy and therefore recommends that BP encourage the government of
Georgia to develop and implement transparent and predictable mechanisms for tracking and utilizing transit-fee revenues in the context of the overall budget.
Transparent and predictable fiscal policy mechanisms could help reduce governance-related concerns about the management of the anticipated project-related revenues. The Panel heard somewhat inconsistent perspectives on whether, in lieu of monetary transit fees, Georgia ought to elect the in-kind allocation of Shah Deniz gas.
Some regarded such a step as a cost-effective means of obtaining much-needed domestic energy from diversified supply sources, while others regarded the in-kind option as merely a crutch that could effectively postpone required reforms in the energy sector or, worse yet, as a potential vehicle for corruption through monetized (and non-transparent)
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gas sales. The Panel plans to revisit the issue of in-kind gas transit fees after further
study and invites comment from interested parties.
3. Transparency Issues
The Panel commends BP’s decision to publish estimates of various
project-related payments to the host governments, as well as the decision to publish (in
local languages) the PSAs, HGAs and IGA governing the Projects. In both respects, BP was specifically and appropriately responsive to requests of regional and international
NGOs. Such transparency facilitates not only an open dialogue about the terms
governing the resource-development activities but also wider public awareness of the
financial earnings being realized by the host governments and the opportunity for
dialogue about the appropriate future uses of those revenues. A number of regional
stakeholders told the Panel that the multiplicity of sources of Project-related revenue
often made it difficult to track the precise magnitude of project-related payments. The
Panel agrees and recommends that BP and its Partners continue and extend their commitment to “publish what you pay” by preparing and making publicly available a detailed and easily understood annual statement of (a) the specific payments – by
category and amount – that are made to the host governments and their various
agencies in connection with the projects, and (b) the overall estimated earnings – again
by category and amount – that the projects generate for the host governments and their
various agencies, including revenue from the sale of the state’s share of oil and gas,
transit fees, grants, taxes and other receipts.
In the case of Azerbaijan, for instance, the contemplated annual statement
would separately identify and detail payments of project revenues flowing to SOCAR and
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SOFAZ. It would supplement not only the annual external audit of SOFAZ,23 which is largely limited to tracking funds already within SOFAZ, but also the reporting templates for oil and gas revenues that are planned under the Extractive Industries Transparency
Initiative (EITI). The EITI, announced by UK Prime Minister Tony Blair in September
2002 at the World Summit on Sustainable Development in Johannesburg and formally launched at a stakeholders conference in London on June 17, 2003, seeks to increase transparency associated with payments by extractive industries to governments and government-owned companies. At that conference, Azerbaijan indicated an intent to participate as one of the pilot countries for EITI, joining countries such as Indonesia,
Ghana and Trinidad and Tobago and a number of oil companies (including BP24) that
have publicly voiced support for the project and principles.
As a significant actor in the economy of Georgia, BP could credibly and effectively urge the government and its state-owned energy companies to support the
EITI, although the principal focus of the initiative is on upstream oil and gas activities.
The principles and disclosures advocated by EITI are a logical and important counterpart to the disclosures already being made by BP in connection with project activities and would further stimulate public awareness and dialogue concerning the project revenues and their ultimate application. Accordingly, the Panel recommends that BP encourage the government of Georgia and its state-owned energy companies to support the EITI and the adoption of the EITI principles in the context of BTC and SCP operations.
23 The current external auditor for SOFAZ is Ernst & Young. 24 In voicing active support for the EITI principles at the London conference, Lord Browne accurately described well-managed foreign investment as the “key to the door out of poverty.”
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In the Panel’s view, BP also should be commended for the strong anti-
corruption policies that it has adopted for the Projects, including conduct by its
contractors and vendors. These policies forbid, among other things, all bribes and
facilitating payments. BP has separately established supplemental guidelines for certain
business activities, an ethics compliance certification process, a confidential hotline for reporting non-compliance and audit and investigative mechanisms.25 The rule of law,
transparency and reliance on arms-length business dealings are essential preconditions for
Azerbaijan and Georgia to fully develop their economies. BP’s strong anti-corruption
policy should help provide a working model for local businesses. The Panel
recommends sustained and vigilant application through all levels of project
implementation of the strong project-related anti-corruption policies that have been
adopted.
B. Procurement, Employment and Small- and Medium-Size Enterprises
BP and its Partners have already taken meaningful steps to help ensure that tangible benefits – both in terms of business opportunities and skills development – flow to local economic participants in Azerbaijan and Georgia as a consequence of project activities. In the Panel’s view, efforts in this area should be sustained and even increased as the projects move forward. In view of the relative significance of the projects for the local economies, BP and its Partners have a unique opportunity to make a contribution to skills development, business practices and the vitality of especially small- and medium-size enterprises (SMEs) in both Azerbaijan and Georgia.
25 See Regional Review at 140-45.
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1. Procurement
The PSAs for both the ACG and Shah Deniz projects call upon the project
partners to utilize local suppliers in those cases where local companies are competitive in
terms of price, quality and availability.26 In addition, the various ESIAs and Contractor
Control Plans specifically highlight these local sourcing opportunities.27 The range of
procurement opportunities varies over the life-cycle of the projects and covers
opportunities for both specialized service companies (e.g., digital business services,
environmental services and equipment rental) and non-technical SMEs (e.g., catering,
painting, security and waste management). Many of the procurement opportunities are or
will be available on a sub-contracting basis since some of the project activities involve
larger initial contracts with follow-on subcontracts for specialists and others. Some of the
procurement opportunities may also be relatively short-term in nature (e.g., pipeline
construction); many require adherence to prescribed industry- or project-related
standards. Local procurement opportunities are especially substantial during upstream
construction in Azerbaijan,28 but there are also significant supply needs in both
26 See ACG and Shah Deniz PSAs, Art. XVIII, para. 18.1. 27 See BTC Pipeline ESIA - Azerbaijan § 11.3 (May 2002); BTC pipeline ESIA - Georgia § 11.3 (April 2002); see, e.g., Contractor Control Plan, Procurement & Supply, Georgia (May 23, 2003). 28 It is estimated that approximately $3.8 billion will be spent in Azerbaijan during ACG Phase I, ACG Phase 2 and Shah Deniz Stage 1, collectively. Indeed, the anticipated in-country expenditures from ACG Phase 1 alone will constitute 5-10% of the country’s GNP. See Regional Review at 102.
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Azerbaijan and Georgia during pipeline construction29 and (to a lesser degree)
operation.30
BP and its Partners have undertaken a number of initiatives in support of
their local procurement requirements. These include, for instance, the following:
• Enterprise Center: On behalf of its project partners, BP established the Baku-based Enterprise Center in May 2002 as a focal point for project- related SME activities in Azerbaijan. The Enterprise Center serves as a clearinghouse for project-related and other oil and gas procurement opportunities in Azerbaijan; provides information to potential local suppliers on industry standards; organizes a wide range of technical and business training activities for local companies (including with respect to project-related tendering activities); and serves as a broader forum for workshops, seminars and dialogue on SME development in Azerbaijan. The Enterprise Center works closely with the IFC and EBRD on SME initiatives. Both the IFC and EBRD have a physical presence on-site at the Enterprise Center. In 2002, the Enterprise Center reported local SME spending of approximately $13.3 million; a target of $20 million has been established for 2003.
• Share Fairs: In March and May 2002, the Projects and their key contractors organized programs in Azerbaijan and Georgia on the potential supply opportunities that would be available for local businesses during the construction phase.
• Business Development Alliance: BP and certain of the project partners are also supporting the Business Development Alliance in Azerbaijan, which functions as a forum for information-sharing among business, government and NGO stakeholders interested in promoting sustainable development and the growth of the private sector in Azerbaijan. The Business Development Alliance operates, at least in part, from the Baku-based Enterprise Center, and sponsors, among other activities, business training and roundtable discussions.
The Panel strongly supports these and related initiatives to stimulate local procurement, and identifies opportunities in a number of additional areas:
29 In connection with the construction of BTC and SCP, it is estimated that a total of approximately $150 million will be spent in Azerbaijan and $180 million in Georgia. Id. at 104-105. 30 Operating expenditures include, for instance, support services for day-to-day operations, engineering and equipment supplies and logistics.
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First, access to affordable capital has been identified as one of the key
obstacles to SME growth in the region. For instance, the Panel heard in the region that
project-related contracts were not consistently accepted as collateral for SME loans, and
that SMEs could not reliably locate sufficient affordable credit. To address these
barriers to SME credit, the Panel recommends that BP and its Partners (a) search for
opportunities to partner with or support regional development organizations such as the IFC, EBRD and USAID in technical assistance and other programs that target
banking functions potentially benefiting SMEs, such as credit analysis; (b) explore
opportunities to fund and/or support credit facilities that could be established by
regional development actors specifically for the benefit of SMEs supplying goods and
services to the projects; and (c) work with local banks to encourage the acceptance of
Project-related contracts as collateral for loans.
Second, although procurement opportunities will inevitably be greater in
Azerbaijan in light of the significant upstream activity in that country, SME development
is equally, if not more, pressing in Georgia. Accordingly, in tandem with overall efforts
to improve access to capital for regional SMEs, the Panel recommends that BP and its
Partners specifically increase efforts to identify and promote local procurement opportunities in Georgia, perhaps partnering with ongoing SME-related initiatives organized by the regional development agencies.
Third, a number of SMEs with which the Panel met in March expressed concern that second- and third-tier subcontractors were not consistently using the
Enterprise Center in posting procurement opportunities and drawing on the inventory of registered local suppliers. The SME representatives also expressed concern that certain
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procurement opportunities were not posted early enough to permit a thorough response
by local suppliers, a concern that might be pursued through the Enterprise Center in
coordination with efforts to deepen subcontractor involvement. To deepen the benefits
flowing from the very useful activities of the Baku-based Enterprise Center, the Panel
recommends that BP expand Enterprise Center activities to ensure that project contractors and subcontractors alike fully utilize the Center in support of local
procurement activities.
Fourth, as BP has recognized, there are notable project-related supply
opportunities for SMEs with non-technical skills (e.g., catering, painting, security and waste management). The Panel recommends that BP increase its efforts to use non- technical SMEs whenever possible to satisfy project needs that do not require special training or skills; BP should encourage its partners to do the same.
Fifth, the skill sets of many of the SMEs already working with the
Enterprise Center would appear to be readily transferable to commercial opportunities beyond the oil and gas sector. Indeed, the Center is already sponsoring training and other
capacity-building initiatives that target SME growth as a whole. The Panel recommends
that BP and its Partners examine whether the Enterprise Center could usefully play a
larger role in identifying and supporting specific SME procurement opportunities
outside the energy sector, recognizing that any such efforts would need to be
undertaken incrementally to avoid diluting the Enterprise Center’s core strength.
2. Employment
The PSAs for both ACG and Shah Deniz call upon the project partners to
utilize local employees to the extent consistent with efficient operations and subject to
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otherwise applicable job requirements.31 Indeed, the PSAs include specific target ranges
for the relative proportion of local employees, tied to various phases of the project.
Moreover, the various ESIAs and Contractor Control Plans detail both the opportunities
and potential benefits associated with project-related local employment, including such
direct impacts as skills development.32
The potential local-employment benefits from the projects are greatest
during the short-term construction period, with much-reduced impacts during the
operations phases. During peak construction periods, for instance, it is estimated that the
projects collectively could generate jobs for as many as 10,000 people, with citizens of
the host countries filling a majority of the positions.33 The anticipated employment
benefits are expected to drop off substantially during the operations phase of the projects,
with aggregate employment of approximately 1,800 permanent skilled drillers, engineers,
technicians and operations mangers across all three countries and projects.34 Only a portion of these permanent skilled positions will be filled by citizens of the host countries.
BP and its Partners have already undertaken a number of initiatives to
increase local, project-related employment and enhance the skill set of at least segments
of the work force:
• Social Impact Management Plans: BP and its Partners are including social impact factors in the various project-related tender documents,
31 See ACG PSA, Art. VI, paras. 6.7 and 6.8. 32 See e.g., BTC Contractor Control Plan on Employment and Training, Azerbaijan (May 23, 2003); BTC Contractor Control Plan on Employment and Training, Georgia (May 23, 2003). 33 Baku-Tbilisi-Ceyhan Summary of Project Benefits (Apr. 2003) at F-5. 34 Id.
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covering issues such as local content in the workforce. The expectations and monitoring plans are further outlined in the Contractor Control Plans that have been issued to translate project commitments into concrete actions.
• Training: In addition to training initiatives organized through the Enterprise Center, a National Training School is being established in Baku to train technicians for employment across the various projects. BP will also recruit graduates of Azerbaijani University into the BP Challenge Graduate Programme (providing operation, engineering and other support training over a three-year period).35
The Panel is concerned that expectations of the long-term employment
opportunities associated with the Projects are unreasonably high and could potentially be a source of social tension or reputational risk for BP and its Partners. The importance of managing expectations has been recognized by BP and its Partners but cannot be overstated.36 In the Panel’s view, BP and its Partners should undertake additional efforts
to manage local expectations of the near- and especially long-term employment
opportunities flowing from the projects. Specifically, the Panel recommends that BP
and its Partners ensure that employment estimates are consistent, realistic and
effectively communicated to the public; BP should also work to ensure that
communities along the pipeline corridor fully understand that the significant,
construction-related employment will not be sustained over time.
C. Domestic Access to Energy
The existing energy generation and distribution systems in Georgia and
Azerbaijan are burdened by a variety of factors: the basic inefficiencies in Soviet
infrastructure design; poor maintenance practices; extremely weak collection histories;
35 ACG Full Field Development Phase 1 Project ESIA § 11.5.1 (Feb. 2002). 36 See, e.g., BTC Pipeline ESIA for Azerbaijan, Executive Summary at 1-26 (May 2002).
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and large, continuing transmission and distribution losses. Against a historical backdrop
of over-consumption and under-collection, the domestic energy sectors in these countries
have suffered as the available capital to maintain and re-equip the systems has dwindled.
In the Panel’s view, domestic energy access issues in Georgia and
Azerbaijan create significant potential risk for BP and its Partners, as they will inevitably
be exposed to criticism if the regional development and transit of billions of barrels of oil
and gas reserves leave a significant share of the families along (and beyond) the pipeline
corridor without heat in the winter and reliable electricity throughout the year. The Panel
recognizes that principal responsibility for establishing a viable institutional and policy
framework to support and sustain the domestic energy sector rests with the governments
and not outside investors. Nonetheless, as a long-term actor in both Georgia and
Azerbaijan, BP should have an interest and a role in helping to address the existing (and,
in the case of Georgia, growing) policy, infrastructure and operational weaknesses. The
Panel plans to return to these issues in greater detail in future reports, but offers in this
section a number of preliminary observations and recommendations after a brief
summary of the domestic energy challenges in each country.
1. Georgia
Georgia’s principal supplier of natural gas is currently Russia, although
Georgia’s poor payment record has lead to supply interruptions. Georgia is also reliant
on outside investment to guarantee the continued functioning of its gas distribution
system, and Russian investors have been playing a leading role. Debts have been mounting in the gas distribution sector, due not only to poor collection practices
throughout the system but also to technical and other supply losses that have been
estimated to be as high as 30 percent.
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Georgia’s gas supply problems have a direct effect on the country’s electricity sector, which also suffers from deteriorating infrastructure, poor collection
practices, large technical losses and corruption. The prospects for thermal power
generation are rather bleak, due in part to technical breakdowns at the large Tblisresi
power plant at Gardabani that supplies Tbilisi and the surrounding area. The country is
heavily reliant on hydro power; prospects for additional hydro power are modestly better due to the availability of natural and foreign investment resources. Total energy demand,
however, still vastly outstrips available supply.
The attitudes and behavior of Georgian energy consumers appear to have
been shaped by years of subsidized energy and the lack of metering and accounting mechanisms. These weak accounting mechanisms and broader governance problems
have created a favorable atmosphere for corruption, which appears to affect many levels
of the country’s energy generation and distribution infrastructure. Poor payment
practices and inconsistent supplies have also contributed significantly to an unprofitable
energy distribution sector, which has been weakened further by a political reluctance to
increase tariffs to cost-recovery levels.
The Panel supports the efforts BP has undertaken to contribute to reforms in Georgia’s domestic energy sector and increase available supply, which have included the following:
• Personnel associated with BP and Statoil have been actively participating in the Resource Planning Working Group organized by the Georgian Ministry of Fuel and Energy. Through this participation, BP and certain of the other Partners have assisted in identifying and clarifying the operational obstacles to a more effective domestic energy sector and have provided concrete technical assistance in the development of recommendations for the government on improving supply conditions.
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• BP also funded and provided the government of Georgia with a detailed technical analysis in the Fall of 2002 of the repair and refurbishment work necessary to bring the Tbilresi power plant at Gardabani back up to a level of reliability, and BP offered to provide the project management expertise to implement the recommendations.
• In cooperation with the government of Norway and Statoil, BP contributed to a project at the Gardabani power station to refurbish facilities for the storage of heavy oil, as an alternative resource to run the power station in the event of a disruption in the supply of natural gas.
• BP and certain Partners have also contributed financially to the Winter Heating Assistance Program administered by USAID, which has assisted Georgia’s poorer communities in obtaining energy assistance during the difficult winter months.
The Panel is continuing to evaluate the actions that BP and its Partners might appropriately and effectively undertake to contribute further to reform of the
Georgian energy sector. In the short term, the Panel recommends that BP continue to play an active role in the Resource Planning Working Group, including provision of technical assistance that has been organized and undertaken through that Group.
A number of potential approaches for the longer term have been identified in the course of the Panel’s interviews to date. In anticipation of providing specific recommendations, the Panel would encourage input from interested parties on initiatives such as:
• Providing or funding a portion of the equipment necessary to undertake energy reform efforts, such as tamper-proof meters for distribution companies (to help address non-collection); equipment to support renewable energy projects (eventually to help ease reliance on imported oil and gas); and computer systems for the back-office operations of certain distribution companies (to help implement better accounting practices and tracking of receivables). Any such activities could be coordinated with donors organizing equipment donations in connection with particular aid packages, such as TACIS (European Commission), USAID and the World Bank.
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• Providing or supporting technical assistance for targeted initiatives that might increase reliable power generation. This might include, for instance, additional work on the Gardabani power plant or work in support of efforts by TACIS on gas transmission systems in Georgia. (In the Panel’s view, the technical assistance work undertaken during 2002 in connection with the facility at Gardabani is a good example of this type of initiative.)
• Supporting ongoing projects the area of hydroelectric power, ranging from river basin management to rehabilitation of the country’s hydroelectric plants to management of reserves at the hydroelectric plants. Projects in this sector have been undertaken or organized by USAID and others.
• Supporting emerging research in Georgia on other forms of renewable energy, such as the potential for wind energy.
The Panel cautions that direct involvement by BP in the supply of free gas to the power sector or in the distribution of free gas might only delay meaningful reform and could enmesh BP in a direct role in the energy sector that is more traditionally the domain of government authorities.
2. Azerbaijan
In Azerbaijan, the challenges are less daunting than in Georgia but not
altogether different. As in Georgia, poor maintenance, weak collections and an overall
lack of available capital has led to a substantial degradation in the domestic energy-
generation and distribution infrastructure. Azerbaijan has appropriately prioritized the
improvement of collection/payment practices, both by state-affiliated and other users of
energy as well as by the utility companies themselves. Azerbaijan has also sought
assistance from the World Bank on reforming its utility tariff structure, principally to
recover the costs of providing service. Improvements have been made – including
through long-term management contracts with private-sector electricity distribution
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companies that include the right to terminate service to non-paying customers – but
challenges remain.
Most of Azerbaijan’s electricity generation emanates from traditional
thermal-electric power plants, and a small amount of electricity is derived from
hydroelectric plants. There has been little change in overall electricity generation over
the last decade, and Azerbaijan regularly imports electricity from its neighbors. As in
Georgia, the supply of electricity in rural areas is less reliable than in the capital.
While Azerbaijan has abundant offshore natural gas reserves, it enjoys limited infrastructure to deliver the gas to onshore users and suffers from insufficient storage capacity. As a result, some of the existing supply is simply being flared offshore.
Azerbaijan has recently been a net importer of natural gas, a significant portion of which
comes from Russia. As the Shah Deniz field is developed, Azerbaijan is expected to
become a net exporter of natural gas and to realize significant new supplies for the
domestic market. The natural gas transmission and distribution network, however,
requires substantial investment and upgrading to address corrosion and leakages (in
addition to losses from non-billed gas). Significant investment is also required in the
country’s existing gas storage facilities, located southwest of Baku at Garadag and
Galmaz.
The Shah Deniz and, to a lesser extent, ACG development projects are
expected to bring substantial benefits to Azerbaijan’s domestic energy sector:
• First, development of the Shah Deniz field will bring direct new supply sources to SOCAR and the government of Azerbaijan.
• Second, under the ACG PSA, Azerbaijan receives and will continue to receive associated gas (i.e., natural gas found with crude oil deposits) free of charge.
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BP and its Partners have undertaken a number of useful efforts to assist Azerbaijan in
realizing these potential project-related benefits. In connection with the early project
design work, for instance, BP and its Partners supported a technical assessment of
Azerbaijan’s gas infrastructure that led to a Gas Master Plan for the country. BP and its
Partners also continue to provide informal support to the government in the development
of energy policy.
Although Georgia and Azerbaijan share a number of structural weaknesses
in their domestic energy sectors, the need for targeted interventions by BP and its
Partners is arguably lower in Azerbaijan than in Georgia, principally because of the
significant resources – financial and natural – that will be available to Azerbaijan as the
projects move forward. Moreover, the government of Azerbaijan is already taking the
first steps toward addressing the structural weaknesses in the domestic energy sector, in
part with technical and other support from BP and its Partners. Nonetheless, there are
still important opportunities for BP to assist Azerbaijan in the realization of the
significant project-related benefits that are available in the domestic energy sector. The
Panel is continuing to examine these issues and welcomes input from interested parties
on the most pressing needs and possible initiatives.
One initiative that has been identified is the possible refurbishment of the
country’s domestic gas storage facilities at Garadag and Galmaz (southwest of Baku).
The Panel understands that BP has undertaken and/or supported initial analysis of such a step. Refurbished gas storage facilities could potentially help balance and optimize the new gas supply arrangements in Azerbaijan as the production operations come on line at
Shah Deniz and increase at ACG. Specifically, such storage facilities might assist
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Azerbaijan in efficiently managing supply contracts that have been executed in
connection with Shah Deniz support sustained and efficient offtake from Shah Deniz and potentially reduce Azerbaijan’s reliance on imports of Russian gas during winter months
if the country is able to build up a reserve supply of gas during any other periods when
Turkey and Georgia choose to acquire reduced amounts. The involvement of BP and its
Partners in the refurbishment effort might also encourage project support from the
international development institutions. Moreover, an improved gas storage capability could potentially facilitate short-term supply by Azerbaijan to Georgia through the
existing Azerigaz distribution system (thus potentially alleviating the need for costly gas-
storage facilities in Georgia). The Panel recommends that BP analyze the potential
effectiveness of gas storage in Azerbaijan and, as appropriate, consider offering, with
its Project Partners, technical and managerial assistance to Azerbaijan in support of
reasonable efforts to refurbish the country’s domestic gas storage facilities at Garadag
and Galmaz.
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Section V
Environmental Impact
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BP conducted environmental reviews and produced environmental impact
assessments for each component of the projects, as well as published drafts and solicited
input on each document from interested parties. The Panel applauds BP for making each
of these documents available both in draft and final form in multiple languages, including
English, Russian, Azeri, Georgian and Turkish. This section discusses a number of the key environmental issues associated with the projects and offers a number of recommendations to BP.
A. Azerbaijan
Based on its review of the myriad environmental and social impact
assessments produced by BP and its Partners, the Panel’s overall impression is that BP
has made a serious and concerted effort to mitigate environmental damage associated
with its Caspian Projects. BP’s analysis of the environmental risks in Azerbaijan was
thorough and detailed. Documentation of these risks, mitigation plans and public
disclosure were comprehensive and full. BP also appears to be either following or
developing industry best practices in terms of pipeline design, including the use of fiber
optic control systems, emergency shutdown valves and active monitoring of pipelines.
During its field visits, the Panel was struck by the extraordinary level of
environmental degradation in Azerbaijan, primarily as a legacy of the Soviet period. In
the Caspian Sea, abandoned derricks and oil platforms rust away and pollute what is the
largest inland body of water on earth. Oil slicks are abundant both in the Caspian itself
and onshore. Plant life along the shore is minimal and soil erosion is severe. Over-
fishing in the Caspian, according to several experts with whom the Panel met, has led to a
near-collapse of commercial fisheries.
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While BP cannot and should not be held responsible for the environmental
degradation associated with earlier environmental mismanagement, it must, at a
minimum, ensure that it minimizes the negative impact of its project activities on the
environment. The Panel recommends that BP, in its role as the major foreign investor
in Azerbaijan, continue to take steps to help mitigate further environmental
degradation in Azerbaijan and in the Caspian Sea.
The Panel offers commentary and recommendations on the following
issues:
1. Drill Cuttings
A number of NGOs, government officials and academics raised the issue
of drill cuttings with the Panel. Drill cuttings are the rock and waste stream that results
from the drilling of an oil or gas well. Disposal of the waste stream onto the seabed can
potentially have a negative environmental impact, especially when certain types of
synthetic drilling muds are used in the drilling process. Governments in North America
and Europe recently have adopted stronger regulation of discharges of cuttings
contaminated with synthetic fluids used with oil and gas drilling operations, although in
many respects Europe and the United States are moving in different directions. BP’s
cutting program has generally followed the European approach.
AIOC and the Shah Deniz consortium commissioned a Best Practicable
Environmental Option (BPEO) study to determine the best course of action for discharge
of cuttings drilled using water-based muds (as opposed to synthetic-based muds). The
BPEO study concluded that the “best disposal method for top-hole drilled cuttings and
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drilling fluids/water based muds is discharge to the Marine Environment.”37 Relying on
the BPEO study’s conclusion, AIOC and the Shah Deniz consortium decided to discharge
top hole water mud cuttings to the marine environment. The top hole section represents
around 15% of the total cuttings generated in a well. BP’s approach at ACG and Shah
Deniz is consistent with BP’s world-wide cuttings practices.
The ACG ESIA notes that “the discharge of drilled cuttings and water-
based muds to the sea will result in the smothering of the seabed in the vicinity of the
discharge point with resultant physical alteration to the seabed and subsequent biological
change to the seabed habitat.”38 In particular, since the drilling program will last for ten
years, the depositing of cuttings on the seabed will have a detrimental impact on certain
benthic organisms; the ACG ESIA states that the impact on benthos on a local scale will
be of “high” significance.39 AIOC and the Shah Deniz consortium have pledged to
monitor closely the impact of cuttings discharges.
While cuttings drilled with water-based muds will be disposed of in the
seabed, cuttings generated with synthetic drilling fluids will be either re-injected into wells or recovered for disposal onshore. The one exception to this approach is at the
Chirag platform where all cuttings will be discharged to the sea because the platform is
not large enough to facilitate recovery of the cuttings for shipment to shore.
The Panel is not in a position to evaluate the methodology or the
conclusions of the BPEO study, nor does the Panel have the technical expertise to
evaluate the precise disposal plan for cuttings from the ACG and Shah Deniz projects.
37 Id. at § 10.3.2.3. 38 ACG Phase 1 Upstream Development Project, ESIA at § 14.2.1.1. 39 Id. at § 16.6.
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However, the Panel does note for BP’s consideration that a number of Azerbaijani government officials, academics and NGOs expressed concern and dissatisfaction with the cuttings discharge plan and its impact on the Caspian Sea. The Panel will continue to review BP’s approach to and disposal of cuttings in future reports. In the meantime, the
Panel recommends that BP continue to monitor the environmental impact of the cuttings discharge program and recommends that it consult on BP’s findings and assessment, on a regular basis, with officials from the Ministry of Environment in
Azerbaijan.
As mentioned above, drilling activities will occur in the upstream projects for more than ten years. The Panel notes that a considerable amount of research has been undertaken by various organizations on best practices for cuttings discharges practices.
The Panel recommends that BP continue to revisit frequently the issue of cuttings discharges in light of evolving global best practices and commit to handling of discharges in line with these changing best practices. In addition, the Panel recommends that BP explore long-term options for permanent disposal of cuttings temporarily stored onshore.
2. Oil Spills
BP and its Partners in AIOC have developed, documented and implemented an oil spill prevention strategy for ACG. In addition, AIOC has developed and will further develop an Oil Spill Response Plan in the event of an oil spill.40 While
AIOC’s oil spill prevention strategy seems to be sound and based on best practices, a major oil spill – while a low probability event – could have significant consequences for
40 See ACG FFD Phase 1 Oil Spill Response Framework. In particular, see Table 8 for the timeline for development and implementation of the Oil Spill Response Plan.
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BP’s reputation also would suffer significant harm in the event of an oil spill.
BP has supported the Azerbaijani government’s efforts to develop a
National Oil Spill Contingency Plan.42 The EBRD has provided funding to the
Azerbaijani government for this plan in which the government will map previously unmapped coastal environments and develop a process for testing and approving dispersants for use in the event of an oil spill. The Panel anticipates that BP will continue its work with the Azerbaijani authorities on this important project.
The AIOC Oil Spill Response Framework identifies the risks and consequences of five oil spill scenarios ranging from a small process equipment leak to a catastrophic blowout at a platform location. The statistical probability of each scenario is very small. AIOC is finalizing response plans in the event of an oil spill from each of these scenarios. The Panel offers three observations and recommendations for BP’s consideration as AIOC develops the final AIOC Oil Spill Response Plan.
First, the AIOC Oil Spill Response Framework notes that the total time to stop the release of oil from a worst-case scenario blowout would be 42 days. Up to
200,000 cubic meters of crude oil could be spilled during this time period. The Panel recommends that BP and its Partners in AIOC explore whether there are practical options to reduce the time it would take to halt the release of oil due to a blowout.
Second, a large oil spill in the Caspian could have catastrophic environmental consequences and require a response in several of the littoral states on the
Caspian. This scenario presents complex and politically sensitive response-planning
41 See id. at Tables 2 - 4 (listing wetlands designated under the Ramsar Convention). 42 See id. at § 4.2.2.
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Environmental Impact challenges for BP and AIOC particularly because of the unsettled jurisdictional boundaries within the Caspian Sea. BP needs to exercise great care to avoid finding itself in the middle of contentious and politically-charged debates over Caspian jurisdictional boundaries. At the same time, to mitigate environmental damage in the event of a transboundary oil spill, BP and AIOC would need to implement a multi-jurisdictional response with speed, ideally after having worked through the complex transboundary issues in advance. The Panel recommends that BP and AIOC work closely with concerned governments in pursuit of a transboundary oil spill response plan.
Third, while the Panel is unaware of any commercial arrangements to export non-ACG oil through BTC, the possibility exists that the BTC partners could market excess capacity in the pipeline to producers with oil from sources other than
ACG, including the Kashagan field in Kazakhstan. The Panel assumes that crude oil from Kashagan would be transported to Sangachal, at least initially, via tanker. If a decision is made to transport non-ACG oil through BTC, the Panel recommends that
BP supplement the existing ESIAs with a risk assessment and proposed mitigation measures associated with this additional supply of oil. The Panel will continue to monitor and provide analysis and recommendations on the environmental impact of additional commercial developments, if any, in future reports.
3. Sangachal Terminal
The existing terminal at Sangachal will be significantly expanded to support the ACG and Shah Deniz fields and the BTC and SCP pipelines. Prior to receiving project approval for the expansion of the Sangachal Terminal, BP and its
Partners completed an ESIA of the Sangachal Terminal Early Civil Engineering Works
Programme. The Panel has reviewed the ESIA, visited Sangachal and concluded that BP
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and its Partners are taking appropriate steps to mitigate environmental damage associated
with expansion and construction of the Sangachal Terminal. In particular, the Panel notes the successful development of the Spur-thighed Tortoise Rescue and Awareness
Program, which will remove tortoises from the affected construction area and relocate them to appropriate nearby habitats. The Panel recommends that BP monitor the Spur- thighed Tortoise Rescue and Awareness Program closely and publish data and results produced by it. The Panel also recommends that BP continue work on and implement the Semi-Desert Habitat Compensation Program to reclaim and rehabilitate land on a
one-to-one or better basis to compensate for the amount of semi-desert habitat lost as a
result of terminal construction.
4. Publication of Scientific Information
The Panel notes that BP and its Partners have commissioned a significant
amount of environmental and scientific data on the Caspian Sea and its environs. Much
of this research focuses on scientific information unrelated to the oil and gas industry,
such as plant and animal studies, ecological relationships, and social and economic data.
As mentioned above, a number of factors, including but by no means limited to pollution
from the petroleum industry, have resulted in dramatic environmental degradation of the
Caspian Sea. BP and its Partners have begun implementing sophisticated plans to
minimize environmental damage associated with the upstream Caspian and transport
projects. BP and its Partners also have articulated plans to monitor the environmental
mitigation efforts described above. Ultimately, the most important indicator of the
success or failure of these mitigation strategies will be scientific data measuring the
impact of the project on the environment. If such data is to have credibility with the
public, however, a baseline of data is necessary.
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Additionally, because of the high profile of the ACG, Shah Deniz, BTC and SCP projects, BP and its Partners risk being unfairly blamed for existing and incremental environmental degradation in the Caspian and its environs, whether or not
BP and its Partners are ultimately responsible. In the words of one scientist interviewed by the Panel: “BP is shooting itself in the foot by not allowing us to publish scientific information. In the event of an oil spill they will be blamed for 100 years of oil industry
environmental neglect unless the true situation prevailing in the Caspian is made public
before they bring all their projects on-stream.” By establishing and publishing baseline
environmental data, BP and its Partners will be better able to identify and distinguish
between sources of environmental pollution in and around the Caspian. The Panel recommends that BP and its Partners publish the baseline environmental and scientific data they have collected to the relevant technical communities and the public at large.
B. Georgia
1. Pipeline Routing
Environmental issues in Georgia, particularly those surrounding the routing of the BTC and SCP pipelines, consumed as much of the Panel’s time as any
other set of issues. As decisions on pipeline routing were made before the Panel was
formed, the Panel focused on understanding the process that led to those decisions, steps
that BP and its Partners have taken and will take to mitigate negative environmental
impacts, and recommendations for additional measures that BP should consider. To this
end, the Panel met or communicated with government agencies, including the Georgian
Minister of the Environment, International Financial Institutions, NGOs, academics and
other interested parties, reviewed dozens of maps, documents, studies and analyses of the
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routing through Georgia and met at length on numerous occasions with BP engineers and
routing experts. The Panel and its consultants also visited the Borjomi region.
The Panel valued the important and constructive input from a number of environmental NGOs, including the World Wide Fund for Nature (WWF). WWF has performed significant environmental work in Georgia including helping to establish the first national park in the Caucasus.43 The Panel also reviewed a significant number of
relevant documents written by or to BP, NGOs, the Georgian Ministry of Environment,
the Georgia Academy of Sciences and various other government agencies.
BP’s initial analysis of options to export oil and gas from the Caspian
region included road, rail, pipeline and shipping options. Various routes and destinations
for these transportation options were assessed. Environmental studies were carried out to
investigate the relative environmental risks and benefits of these options. The studies
concluded that the Baku to Ceyhan pipeline option had the lowest environmental risk
and, importantly, avoided the significant risks associated with tanker transport of oil
through the Bosphorus Straights. It is the Panel’s view that BP’s analysis of alternatives
was sound and that the decision to proceed with pipelines to export hydrocarbons from
the Caspian is well-founded from an environmental perspective.
Once BP and its Partners decided on a pipeline route from Baku to
Ceyhan, they considered three alternative ten kilometer-wide “corridors of interest” for
the BTC and SCP pipelines.44 All three of the alternatives were quickly taken off of the
43 The Panel and secretariat met with WWF officials in Washington, London and Georgia and held several conference calls with WWF officials prior to the Panel’s visit to the region. 44 The three routes were: 1) Eastern corridor crossing the Akhalkalaki district;
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table. Specifically, the Western Corridor was rejected because it required the pipelines to
cross the Borjomi-Kharaguali National Park and the severe terrain of the Meskheti
Mountain Range. As stated in the BTC Project ESIA, “the presence of the Russian
Federation military facilities in the district of Alkhalakai raised serious security
concerns.”45 Additionally, the Akhalkalaki region has a significant population of ethnic
Armenians. Accordingly, the Central and Eastern corridors were rejected by the
Georgian government for security reasons because these routes passed through the
Akhalkalaki Administrative District. As a result, BP and its partners identified a new ten kilometer-wide corridor known as the Modified Central Corridor.46 Some time later, as
required by the Georgian Minister of Environment, BP analyzed and rejected an alternative to the modified central corridor that passed over or through the Karakaia mountain range (“the Karakaia route”).
As outlined in the Georgia Route Reports, the Modified Central Corridor passes through several areas of environmental, economic and social importance to the people of Georgia. In particular, the section from the Tskhratskaro Pass to Kodiana Pass is, as stated in the Georgia Route Reports, “the most sensitive area along the entire pipeline.”47 In addition, the Borjomi region retains an important cultural mystique within
Georgia. The Modified Central Corridor lies in the surface water catchment area of the
Borjoloma River, which ultimately flows into the Mtkvari river, near which the town of
2) Western corridor crossing the Borjomi-Kharagauli National Park; and, 3) Central corridor crossing through the Erusheti mountains and crossing part of the Akhalkalaki district. 45 See BTC Project ESIA Georgia, April 2002, at page 11. 46 The Modified Central Corridor passes to the south of the Borjomi Kharagauli National Park and State Nature Reserve and north of the Akhalkalaki district. 47 Georgia Route Reports, at 68.
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Borjomi is located. Important commercial and economic activities are based in this region, including a popular ski area and bottled water companies. In addition, the
Borjomi region has economic potential as a center for tourism.
The Panel met on more than one occasion with officials from the Georgia
Glass and Mineral Water company (GGMW), a major employer in the Borjomi region and Georgia’s largest exporter. GGMW is concerned about both reputational risk to its
franchise because of the pipeline’s mere existence as well as the impact on the company
if there were an oil spill in the region. GGMW plays a very important role in the Borjomi
region’s economy. Because BP and GGMW are in discussions on a variety of commercial issues, the Panel has decided to refrain from commenting further. The Panel recommends that BP and GGMW engage in good faith discussions with the aim of reaching a mutual understanding on the issues in dispute.
Based on discussions with BP and other participants in the route selection process, it is the Panel’s view that the Modified Central Route was not the preferred option for BP from either an environmental or economic perspective. The Eastern route crossing the Akhalkalaki Administrative District not only avoided sensitive environmental areas, including Borjomi, but also was shorter in length and avoided high mountain ranges.48 As articulated in a February 2003 letter from President
Shevardnadze, 49 any route that crossed the Akhalkalaki district was unacceptable for the
Georgian government for security reasons.
48 See, e.g., Advisory Review of the Environment and Social Impact Assessment Reports for the Baku-Tbilisi-Ceyhan Oil Pipeline and the South Caucasus Gas Pipeline in Georgia, Dutch Commission for International Impact Assessment, Nov. 2002. 49 See Letter from Eduard Shevardnadze, President of Georgia, to James D. Wolfensohn, President of the World Bank, Jean Lemierre, President of the EBRD, and
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The Panel recognizes that BP and its Partners were placed in a difficult
position because of the strong reluctance of the Georgian Government to publicize the
fact that its security concerns had eliminated the option of routing the pipeline through
Akhalkalaki and, therefore, placed the onus for publicizing this fact upon BP and its
Partners. In fact, it took thirteen months – from the time the ten kilometer corridor of
interest was selected, to the time that President Shevardnadze sent his letter -- for the
Georgian government to publicly acknowledge its security concerns.50 However, the
Panel also recognizes the difficult issues the Government of Georgia faced in openly
discussing sensitive security concerns.
Because of the sensitivities associated with publicly discussing security
concerns associated with the Akhalkalaki district, it is the Panel’s view that discussion of
the options for the ten kilometer corridor of interest was not as fulsome as it should have
been. Indeed, in the Panel’s view, the impression was created that the BTC pipeline
corridor was routed primarily on geotechnical, environmental and social criteria when in
fact security considerations appear to have been a principal factor driving the routing
decision. Thus, notwithstanding the disclosure of the security concerns in the BTC
Project ESIA, when the corridor selection process was evaluated externally, many
observers, institutes and NGOs based their evaluations on environmental and social
criteria only, and, thereby, found the analysis unpersuasive. In the Panel’s view, the fact
that the political constraints associated with the routes through Akhalkalaki were not
sufficiently underscored weakened public confidence in the route selection process. A
Peter Woicke, Executive Vice President of the IFC (available at www.caspiandevelopmentandexport.com as Appendix 3 to the BP document entitled “Georgia Route Reports”), Feb. 2003. 50 Id.
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BP’s internal policies stress the importance of maximum openness.
The Panel recognizes that pipeline security considerations are an important factor that should be weighed heavily. It is also the Panel’s view that, provided the over-riding political constraints on corridor routing are accepted, it is likely that the route that was ultimately selected would have been chosen even with a more fulsome debate over the options.
The Panel has reviewed the process BP and its Partners undertook to identify sequentially, within the ten kilometer corridor of interest, the 500 meter preferred route corridor, the 100 meter specified corridor and the final construction corridor. It is the Panel’s view that BP and its Partners have done exceptional work to adjust and refine the ultimate construction corridor to mitigate potential environmental damage.51 The
Panel’s view is that BP has documented the steps taken to select the final construction corridor with great skill.
As mentioned above, BTC was asked to evaluate the Karakaia route by the
Georgian Ministry of the Environment as part of the “ongoing activities” accompanying approval of the ESIA. The Karakaia route was suggested by the Georgia Academy of
Sciences as an alternative to the Modified Central Route that would avoid both
Akhalkalaki and the Borjomi region. In the Panel’s view, BP adequately and persuasively outlined in its Georgia Route Reports document why the Karakaia route presents significant cost and environmental problems. Full analysis of and reporting on
51 For a detailed description of the process to narrow the 10 km corridor of interest to the ultimate construction corridor, see Georgia Route Reports, at 39-84.
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the Karakaia route, however, was completed after the route decision was made and
therefore justifies the route decision rather than providing a pre-decision analysis of
alternatives, as would have been desirable. Nevertheless, it is the Panel’s view that
BTC’s rationale for rejecting the Karakaia route is sound.
The Panel reviewed the requirements issued by the Georgian Minister of
the Environment upon granting of the original environmental permit. Among other
requirements, the Ministry of Environment called for additional work and reporting on
landslide hazards, biodiversity, river and gully crossings, protection of groundwater
deposits, leakage prevention facilities, an oil spill response plan, a detailed management
and monitoring plan, additional routing analysis and numerous other additional studies.
The environmental permit also requires frequent reports and consultations between BTC
and the Ministry of the Environment. The Panel recommends that BP publish and
disclose all of the additional work performed for the Ministry of Environment.
Finally, the Panel in mid-June held an extended conference call with Nino
Chkhobadze, the Minister of Environment and Natural Resources (“Minister of
Environment”) of Georgia. She had not been in Georgia during the Panel’s visit in
March. Among other issues, the Minister reported to the Panel that at the time of the call certain requirements that accompanied approval of the BTC ESIA had not been completed, and that various documents submitted to the Ministry of Environment were in
English and not Georgian. The Minister of Environment also suggested that coordination
and cooperation with BP and BTC could be better, although she noted that cooperation
had recently improved. It is the Panel’s view that continuing consultation and cooperation by BP with the Ministry of the Environment is important for the successful
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execution of the project. It is the Panel’s view that BP and its Partners could have
improved and broadened the dialogue with NGOs and the Ministry of the Environment,
particularly early in the route selection process. If BP has not already done so, the
Panel recommends that BP and its Partners promptly complete the “ongoing activities”
required in accordance with the agreed timetable, including submission of the required
reports in Georgian. Given the controversy surrounding environmental issues in
Georgia, the Panel recommends that BP redouble its efforts to improve relations and
cooperation with the Ministry of the Environment.
2. Mitigation Measures
In addition to these route refinements, BP and its Partners have adopted
mitigation measures to avoid potential environmental damage. In the Borjomi region, for
example, BP has installed additional block valves on the pipeline in those areas of particular environmental sensitivity, to reduce the potential volume of oil released in the unlikely event that an oil spill should occur. The location of these additional block valves was selected in consideration of specific areas of greatest environmental sensitivity. In addition, as of June 2003, BP and its Partners had engaged a team to undertake a study and recommend mitigation measures in areas of particularly high seismic activity.
Studies of the “landslide hazard areas” were required as part of the conditions associated with the Georgian Ministry of Environment’s grant of an environmental permit for BTC’s
ESIA.52 One option under consideration by BP’s geotechnical experts is to “trench
down” into a firm foundation below the base of a potential landslide, situating the pipe in
a bed of rocks to allow for movements in the earth underlying the base of the landslip. In
52 See Continuing Activities Under the Environmental Permit for the BTC ESIA, Georgia Ministry of Environment (Nov. 2002), at 1.
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addition, BP has enhanced the wall thickness and diameter of the pipeline in
environmentally sensitive areas and will implement a comprehensive monitoring program
once the pipeline is operational.
It is the Panel’s view that a comprehensive effort to disseminate BTC’s
mitigation strategy to NGOs, academics and, most importantly, the people living in the
Borjomi region is critically important because of concerns about the risks to the environment. Placement of the pipeline in this region has engendered sustained controversy, and a coordinated effort is needed to explain the steps that are planned to reduce the risk of environmental damage. While the Panel does not profess technical
expertise on these issues and defers to geohazard experts, the Panel recommends that
BP and its Partners publish and widely disseminate the findings of the geotechnical studies, as well as the approaches BTC will undertake to avoid and mitigate environmental damage in landslide prone areas.
In the Panel’s view, additional steps need to be taken by BP and its
Partners to satisfy community concerns in the Borjomi region. Local stakeholder participation in monitoring activities is one way to ensure that community concerns are
brought to the attention of BP and its Partners in a timely fashion. In Alaska, regional citizens advisory councils have been established to foster dialogue between the community, regulators and oil companies. These advisory councils provide direct public
oversight of oil industry operations in environmentally sensitive areas. The Panel recommends that BP support and fund the creation of a community monitoring council to track the potential effects of the pipeline in the Borjomi region, taking into consideration the successful experience of such councils in Alaska. Because of the
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importance of the Borjomi region to the people of Georgia, the Panel recommends that the community monitoring council have broad-based representation, including local citizens and leaders in the Borjomi region, prominent persons from other regions in
Georgia and experts from the Georgia Academy of Sciences.
This effort should not only be undertaken to prepare for the unlikely event
of an oil spill but also to give the community some comfort that BP and its Partners have
adequate plans in place to respond quickly in the event of a pipeline breach. The Panel
also recommends that BP involve local government and citizens in its oil spill response plan and develop a program to train and equip the local community in Borjomi to respond to an oil spill.
C. Decommissioning/Abandonment
The eventual disposition of production and pipeline facilities will be a
significant factor in the long-term environmental impact of BP’s investments in the
region. The Panel has accordingly looked closely at the decommissioning arrangements
envisaged in the various agreements governing ACG and Shah Deniz, as well as the BTC and SCP pipelines.
1. The Contractual Framework for Decommissioning
The agreements governing the various Caspian Projects each contain
provisions relating to decommissioning. For the purpose of analysis, this section
differentiates between facilities associated with offshore production (oil rigs, underwater
pipelines, the terminal at Sangachal) and those devoted to onshore transportation (the
BTC and SCP pipelines). The Panel expects to discuss decommissioning of the terminal
facilities at Ceyhan when it reviews the impact of the Caspian Projects on Turkey in its
next report.
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The disposition of offshore facilities is governed by the ACG and Shah
Deniz Production Sharing Agreements (PSAs). These envisage that SOCAR will assume
ownership of production and other facilities in 2024.53 However, the PSAs also require
the investors to cover decommissioning costs, through payments into an Abandonment
Fund that will be established once 70% of the respective reserves have been recovered.54
Under the PSAs, decommissioning of individual facilities may be undertaken by either
SOCAR or the investing companies, depending on where ownership lies at the time. In either case, costs would be covered from the relevant Abandonment Fund and decommissioning would proceed according to abandonment plans to be drawn up by the companies one year prior to creation of each of the Funds.55 The PSAs also provide that
abandonment of fixed assets will be in accordance with international petroleum industry practice.56
Disposition of onshore transportation facilities is governed by the Host
Government Agreements (HGAs), and other agreements relating to the BTC and SCP
pipelines. Under these agreements, ownership of the pipelines, and with it the
responsibility for decommissioning, will pass to SOCAR after the pipelines have been in
operation for approximately 20 years.57 If the HGAs are, for any reason, terminated
while the pipelines remain in the ownership of the investing companies, those companies
53 See ACG - Full Field Development - Phase 2 ESIA, at § 3.1.4. 54 ACG PSA, at Art. 14.2(a); Shah Deniz PSA at Art. 14.2(a). 55 Id. at Art. 14.2(g). 56 Id. at Art. 14.2(e). 57 See BTC Pipeline ESIA - Azerbaijan, § 5.11.3; BTC Pipeline ESIA - Georgia, § 5.11.3; SCP ESIA - Azerbaijan, § 5.10.3; SCP ESIA - Georgia, § 5.9.3.
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are required to present an Abandonment Plan and subsequently to pay for
decommissioning.58
2. Disposition of Offshore Facilities
The provisions relating to offshore facilities have been criticized on the grounds that BP and its Partners have not committed in advance to specific decommissioning measures, including the total removal of oil platforms. The Panel recognizes, however, that best international practice with regard to offshore installations
is in constant evolution. For example, the 1982 United Nations Convention on the Law
of the Sea altered the obligations of coastal states in this area compared to the 1958
Continental Shelf Convention.59 Guidelines on the removal of offshore installations
adopted by the International Maritime Organization (IMO) in 198960 also have had an
impact on what is considered best practice. Moreover, alternative commercial uses for
specific facilities that cannot presently be foreseen also may have a bearing on what will
constitute the most environmentally friendly disposition option once oil and gas resources
have been fully recovered. The Panel therefore concludes that provision for preparation
of abandonment plans as the oil and gas resources near exhaustion is an appropriate
approach to the decommissioning challenge.
58 See, e.g., BTC HGA - Azerbaijan, Appendix 3, Art. 3.14. Appendix 3 of the HGAs sets out in some detail how the decommissioning is to be conducted. 59 Compare 1958 Continental Shelf Convention, Art. 5(5) (requiring complete removal of abandoned installations) with 1982 United Nations Convention on the Law of the Sea, Art. 60(3) (requiring only that abandoned or disused installations be removed to the extent necessary to ensure safety of navigation, to have due regard for other interests such as fishing and the environment, and if removal is required under generally accepted international standards). 60 Guidelines and Standards for the Removal of Offshore Installations and Structures on the Continental Shelf and in the Exclusive Economic Zone, annexed to IMO Resolution A.672(16), adopted Oct. 19, 1989.
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In the Panel’s view, BP should, if they have not done so already, integrate
decommissioning considerations into its initial construction choices. The Panel
therefore recommends that BP, to the extent it is not already doing so, respect the
provision in the 1989 IMO Guidelines that all new offshore structures be designed and
constructed so as to make feasible their entire removal upon abandonment.61
Second, with international best practice increasingly favoring the removal
of offshore facilities on abandonment,62 public consultation will provide BP with an
opportunity to engage local stakeholders if the particular circumstances of the ACG or
Shah Deniz projects point towards a different decommissioning solution. The Panel
notes that the PSAs relieve the investing companies of liability should the Abandonment
Fund prove insufficient to complete decommissioning.63 The involvement of
stakeholders prior to and during the preparation of the abandonment plan might help to
avoid any such mismatch between decommissioning requirements on the one hand and
the funds provided for this purpose by the investing companies on the other. The Panel
recommends that BP ensure that its decision-making process with regard to
decommissioning is subject to public scrutiny well in advance of the deadline stipulated
in the PSA for preparation of an abandonment plan.
As discussed above, the Caspian Sea is littered with abandoned derricks
and oil rigs. BP’s investments in the Caspian Projects ultimately will be judged by
61 Id. at Art. 3.13. 62 See, e.g., Convention for the Protection of the Marine Environment of the North- East Atlantic (making complete removal of abandoned or disused offshore installations the default rule). Given the spirit of the commitments that BP and its Partners have made to observe standards in line with international best practice, it is the Panel’s view that compliance with the North Sea standards would be consistent with BP’s overall approach to project activities. 63 ACG PSA, Art. 14.2(e); Shah Deniz PSA, Art. 14.2(e).
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whether the facilities are decommissioned, even if ownership has meanwhile passed to a
third party. The Panel also recommends that, when ownership of the offshore facilities
changes hands, BP should do everything possible, including contractually binding
SOCAR, to ensure that the ultimate owner properly decommissions the facilities.
The Panel recommends that BP must make every effort to ensure that decommissioning, when carried out by third parties such as SOCAR, does in fact accord with best international practice.
To this end, the Panel recommends that BP and its Partners clarify its
commitment to decommission the project facilities, publish an estimate of the ultimate
costs and demonstrate that the project partners are contributing sufficient funds well in
advance of termination of the facilities’ use to cover decommissioning costs.
3. Disposition of Onshore Facilities
The Panel notes the concern expressed by some NGOs that, because BP
has failed to make advance provision for closedown costs of the BTC and SCP pipelines,
there is a prospect of thousands of tons of pipeline being left to rot.64
As noted above, Appendix 3 of the HGAs establishes with some
specificity the actions to be taken as part of any decommissioning conducted by the
pipeline operators prior to ownership passing to SOCAR. These include the removal of
all surface installations, the drainage and proper disposition of any remaining oil or gas in
the facilities, and the revegetation of the pipeline corridor. To the extent that the
operators do not plan to remove and salvage pipelines, the agreement requires them to
64 See, e.g., WWF Position on Azerbaijan-Georgia-Turkey pipeline, Nov. 21, 2002.
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abandon these pipelines in place, in line with generally prevailing standards in the
international petroleum pipeline industry.
It is accepted practice within the industry for buried pipelines to be left in
place on decommissioning, subject to cleaning to ensure that all contaminants are
removed and other measures to safeguard against subsidence. Indeed, removal of the
buried portions of pipeline could conceivably lead to higher levels of environmental
disruption. The Panel recommends that BP pay close attention to existing65 and future
international standards in this area, if it should prove necessary for the operators to remove the pipelines.
The greater likelihood is that the task of decommissioning will fall to
SOCAR after it assumes ownership of the pipelines. As with the offshore facilities, BP’s environmental record in the Caspian will be judged in part by how the ultimate owners dispose of the pipelines. Accordingly, in the Panel’s view, BP should not regard the transfer of ownership as terminating BP’s interest in the ultimate disposition of the
BTC and SCP pipelines. Moreover, BP should make every effort, including in the agreements formally transferring ownership, to ensure that the pipelines are eventually decommissioned in line with the best international standards.
The Panel also reviewed BP’s plans for decommissioning of the terminal
at Sangachal. The Shah Deniz ESIA recommends that the terminal at Sangachal
should eventually be dismantled and removed, and the land returned to its former
65 See, e.g., Decommissioning, Remediation and Reclamation Guidelines for Onshore Exploration and Production Sites, Oil Industry International Exploration and Production Forum (1996).
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66 Shah Deniz Gas Export Project Stage 1 Development ESIA, at § 5.5.8.
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Section VI
Social Impact
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This section examines the social impact of the Caspian Projects on the
people and communities of Azerbaijan and Georgia as it relates to land acquisition and
cultural heritage management.67 The Panel views the social impact of BP’s investments
as both local and regional in scope. At the local level, individuals and communities along
the pipeline corridor will lose temporary or permanent access to land required for
pipeline construction. To offset these negative effects, BP and its Partners in BTC and
SCP have developed and implemented a strategy to compensate individuals and communities for the loss of ownership and use of their lands. At the regional level, discussed in detail in Section VII, BP’s significant presence in Azerbaijan and Georgia
provides BP with an opportunity to become a partner in the region’s development and
growth beyond the oil and gas sector.
A. Land Acquisition, Economic Displacement and Compensation
1. Overview of Land Acquisition and Its Challenges
As with many large-scale public infrastructure projects, construction of the
BTC pipeline and SCP directly impacts individual rights and livelihoods. The BTC pipeline construction corridor, which spans approximately 44 meters in Azerbaijan and
Georgia and 32 meters in Turkey and extends 1,760 kilometers through Azerbaijan,
Georgia and Turkey, affects approximately 4,100 households in Azerbaijan and
approximately an additional 1,800 households in Georgia.68
67 Issues related to job creation and employment are discussed in Section IV. Community and social investment initiatives are discussed in Section VII. 68 See Resettlement Action Plan - Georgia (“RAP-Georgia”) (Dec. 2002); Resettlement Action Plan - Azerbaijan (“RAP-Azerbaijan”) (Nov. 2002). The RAPs are available at http://www.caspiandevelopmentandexport.com/ASPIDD-BTC.asp.
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During the three-year BTC and SCP pipeline construction phase, both land
owners and land users, including tenants on private land and those with shared rights to
communal land, will lose access to property along the construction corridor.69
Identifying all affected land owners, tenants and informal land users (those without clear
legal rights) along the route has been a challenging task, both because Azerbaijan and
Georgia do not have accurate property records and because there are many absentee land
owners that must be located abroad.
Although no households will be required to relocate as a result of the BTC
and SCP projects, BP and its Partners have, in accordance with World Bank Group
guidelines, developed a Resettlement Action Plan (RAP) to address economic
displacement along the pipeline corridor.70 In accordance with the guidelines, BP and its
Partners designed a land compensation arrangement to pay owners for their land and to compensate farmers, herders and other land users.71 Farmers and herders lose physical
access to their land and the ability to earn income from the land through farming and
grazing activities primarily during the construction phase.
69 RAP-Georgia § 2; RAP-Azerbaijan § 2. 70 BP and its partners have also completed RAPS for the ACG and Shah Deniz projects. 71 The legal framework for land acquisition differs between Azerbaijan and Georgia. See HGA-Azerbaijan §§ 4.1, 7.2; HGA-Georgia §§ 4.1, 7.2 (Host Government Agreement provisions related to land acquisition). In Azerbaijan, the State leases the land from individual land owners and then, in turn, grants use rights to BP and its Partners for the three-year construction period. See RAP-Azerbaijan § 5.4.2. The State purchases land needed for above-ground installations and permanent access roads, with use rights granted to BP and its Partners until termination of the HGA and abandonment of the facilities. Id. By contrast, in Georgia, BP and its Partners are purchasing land directly from land owners, rather than leasing land from the State or land owners. According to BP and its Partners, this approach was adopted because Georgian law does not provide for lease rights that would give BTC and SCP the legal certainty necessary to construct and maintain the pipelines. RAP-Georgia § 3.4.
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In addition to paying land owners for the land itself, BP and its Partners are compensating land owners for economic losses equivalent to the value of improvements and standing crops on their land. Tenants and other land users (as opposed to owners) are paid for three years of lost crop production, consistent with the three-year time horizon for construction and reinstatement. BP and its Partners have pledged that most land72 will be returned to land owners after construction, with some restrictions on use.
BP and its Partners have taken steps to locate and compensate absentee land owners. NGOs voiced concerns early in the process that BP and its Partners might not be doing enough to locate land owners who were not living in the affected communities. This was a particular concern in Georgia because some land owners live abroad. However, through extensive outreach efforts, most absentee land owners have been contacted and have received compensation. In cases in which BP has been unable to contact absentee land owners, BP and its Partners have acquired the property through legal procedures similar to eminent domain. BP has committed to compensating those absentee land owners who may come forward in the future, even if the property has been secured through eminent domain-type proceedings.
Land compensation is the single most important and tangible benefit many individuals along the pipeline corridor will receive from the BTC and SCP projects. By all accounts, BP and its Partners are completing land acquisition transactions at a rapid
72 The exception is land needed for above-ground installations and permanent access roads.
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pace, and it is possible that they will have secured all land rights along the pipeline
corridor by the time this Interim Report is published.73
BP and its Partners have faced a number of challenges related to the land
acquisition and compensation process. First, BP and its Partners had to determine fair
compensation payments without a great deal of historical market data. Second, some
land owners did not have proper title to their land and some users were “informal” users without clear legal rights. Third, BP and its Partners needed to ensure that individuals entered into land acquisition contracts freely, after being fully informed of the terms of the agreement. Fourth, the compensation process for users of public, communal grazing lands, especially in Georgia, needed to be adequately addressed. Fifth, the process for returning land remains uncertain in Georgia where sufficient easement laws do not exist.
Sixth, BP and its Partners needed to guard against speculators and interlopers who might buy up land from unsuspecting individuals in order to secure compensation payments.
Finally, through its extensive consultations with NGOs and other stakeholders, the Panel has heard from several sources that extortion and theft associated with the land acquisition process have become a problem in some communities, especially in certain parts of Georgia.
2. The Land Compensation Process
In the Panel’s view, BP and its Partners have approached land acquisition and compensation in a thorough and equitable manner, especially given the complexities
73 The Panel has reviewed the RAPs, Environmental and Social Action Plans, Host Government Agreements and other documentation related to land acquisition and compensation in Azerbaijan and Georgia. In addition, the Panel has consulted with government officials, land acquisition team members and numerous NGOs, including those participating directly in the land acquisition process.
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Social Impact of land ownership and property rights in Azerbaijan and Georgia. Individuals have received adequate compensation, and in some cases BP’s involvement in the land acquisition process has clarified individual property rights. BP and its Partners have erred on the side of providing broad benefits, paying compensation to informal land users and others without clear property rights. BP and its Partners worked with State officials to ensure that all land parcels along the construction corridor were properly registered with the government. These efforts clarified land owner rights, assisted with land privatization efforts and contributed to a stronger private property regime in Azerbaijan and Georgia. Providing that the risk of extortion can be contained, this policy of compensating all individual land owners and users adversely affected by pipeline construction should help reduce the possibility for conflict and social unrest along the pipeline route.
a) Land Transactions
Through community meetings and publicly available Guides to Land
Acquisition and Compensation, BP and its Partners engaged in an extensive public information campaign to inform communities about pipeline construction and the related land acquisition process. In general, BP and its Partners have engaged in effective public consultation, and individuals have provided informed consent to land transactions in most cases.
In both Georgia and Azerbaijan, BP and its Partners took the important step of engaging independent NGOs specializing in land owners’ rights – the Center of
Legal and Economic Education (CLEE) in Azerbaijan and the Association for Protection of Landowners’ Rights (APLR) in Georgia – to counsel individuals throughout the negotiation process. The Panel commends BP and its Partners for engaging these NGOs
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and believes that individual land owners have benefited from NGO participation in the negotiating process.
Land transactions are now being finalized quickly. While speed is
essential for the construction schedule, in certain cases, this fast pace has led to some
confusion. Certain NGOs have indicated that individuals do not have enough time in
advance of closing to allow for proper review of key documents by either the land owners
or the NGOs engaged to advise them. This appears to be more of a problem in
Azerbaijan than in Georgia. The Panel recommends that BP investigate these complaints and work with CLEE and APLR to ensure that these NGOs have enough
time and resources to review documentation and properly advise land owners during
the final stages of the land acquisition process. BP and its Partners also should make
special arrangements to communicate with and explain the compensation process to
persons who are unable to read the contracts as they are currently drafted; this is
especially relevant for Azerbaijanis who only read Cyrillic script.
BP and its Partners have partnered with local banks and have encouraged individuals receiving compensation to keep their funds in a bank account. In Azerbaijan, all land compensation payments are deposited directly into a bank account; the individual retains the option to keep the account open or to close the account and take a cash payment. In Georgia, land closings occur at the bank and individuals may open an account if they choose to do so.
BP deserves credit for providing this option and giving individuals easy access to a bank account, if they desire one. BP and its Partners also have created a neutral, safe environment for land compensation payments to take place. However, the
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Panel understands that less than a quarter of all individuals are choosing to keep their money in the bank. The Panel recommends that BP take steps, in cooperation with international financial institutions, to support targeted reforms that would enhance confidence in the banking system in Azerbaijan and Georgia.
The Panel has heard reports from several NGOs and other sources that some individuals who receive land compensation payments may be targets for theft and extortion, especially in Georgia. This extortion usually occurs after BP has completed the formal land acquisition process. Transparency in the land compensation process, while necessary, also potentially increases the number of people who have knowledge of those receiving compensation. The Panel recommends that BP work with appropriate
NGOs and, where possible, local officials to develop ways to ensure adequate security for individuals receiving compensation.
b) Outstanding Legal Issues
In some rural communities along the pipeline corridor in Georgia, individuals have rights to use state-owned communal lands for grazing. These communal land are managed by village councils, known as sakrebulos. Normally, community members pay grazing fees to the village council. BP has decided to compensate individual users of these communal lands by paying grazing fees directly to the village councils on behalf of these individual users. This approach has caused some confusion since in most other cases individuals receive direct compensation payments when their land use is disrupted. This confusion might have been avoided with more effective consultation with users of communal lands and government officials at an earlier stage in the land acquisition process.
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BP and its Partners recently established a RAP Fund in Georgia that will
implement BP’s plan to pay compensation for communal grazing lands to local village
councils.74 The village council will determine how these compensation funds are used.75
Some NGOs have suggested that BP make these payments to a community organization established to administer the funds, rather than to local officials. The Panel recommends that BP make compensation payments for communal lands in a way that will ensure that the affected villagers who are losing their grazing rights benefit directly from compensation funds.
According to BP’s Guide to Land Acquisition and Compensation widely distributed to the affected public, BP intends to return purchased land, subject to certain use restrictions, after construction is complete. This is accomplished through leases in
Azerbaijan. No similar legal framework exists in Georgia that would allow BP and its
Partners to lease and return the land to individual landowners subject to specific restrictions on use.76 BP therefore has made outright purchases of all property along the
pipeline corridor in Georgia.
BP has stated clearly and unequivocally that it does not want to become a
long-term land owner in Georgia. Nevertheless, without a legal means to return the land
to the original owners with use restrictions, it is not clear how BP plans to return the
property after construction is completed. In the Panel’s view, it would have been
preferable if BP and the Georgian government had resolved this legal issue before land
74 BTC Project Resettlement Action Plan (RAP) Implementation Strategy for Development of the RAP Fund in Georgia (June 2003). 75 Id. 76 RAP-Georgia § 3.4.
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Social Impact acquisition transactions were finalized. Now that land acquisition has begun in Georgia, land owners will understandably seek assurances that their land will be returned to them once construction ends. At this stage in the process, the Panel recommends that BP work with Georgian authorities to establish post-construction land restitution procedures as soon as possible. The Panel also recommends that BP publish its commitment to return the land once construction is completed assuming BP can maintain use rights when it returns title to the original owner. BP should provide this statement in writing in local languages to all land owners, along with the purchase agreements and other documentation.
c) Monitoring and Grievance Procedures
Under the RAPs, BP and its Partners make significant commitments designed to mitigate the negative impacts of pipeline construction. Monitoring mechanisms should be in place at every stage of RAP implementation to ensure that BP and its Partners meet these commitments, especially since many of the commitments will be fulfilled not by BP, but by the construction contractor. Individuals in the affected communities and local community leaders are in many ways best situated to report on the status of RAP implementation, since their daily lives are directly affected by pipeline construction. Yet the monitoring procedures outlined in the RAPs have not, until recently, provided a means for individuals along the pipeline corridor, local leaders or civil society more generally to provide formal feedback to BP regarding RAP implementation. The Panel recommends that BP establish formal mechanisms that directly involve civil society, individuals and local community representatives in the monitoring process. This monitoring panel should complement BP’s current community relations initiatives and provide a more structured forum for local monitoring activities.
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Establishing an external monitoring panel, as outlined in the RAP
Monitoring Implementation Plan, is an essential part of an effective and comprehensive monitoring process. The RAP Monitoring Implementation Plan names two of the three external monitors called for in the RAP and establishes specific procedures for external monitoring. The Panel has been informed that this external monitoring panel will not begin its work until late summer or early fall, after land acquisition is complete. In the
Panel’s view, BP should establish an external monitoring program before the land acquisition process is complete. The Panel recommends that BP establish an external monitoring panel as promptly as possible in accordance with RAP procedures.
Disputes inevitably arise during large scale construction projects over a variety of issues, including accidental damage to buildings, infrastructure and livestock.
In the Panel’s view, the local population should have open lines of communication with the construction contractor and BP in order to resolve disputes promptly and amicably.
Effective grievance procedures should help ensure that BP and the contractors remain responsive to local concerns and improve community relations along the construction corridor. Although a grievance process was outlined by BP during the public disclosure phase of the land acquisition process, a new and broader effort should be launched to make individuals aware of both the grievance procedures and the existence of community liaisons employed by the construction contractor. Such an outreach effort is consistent with BP’s Guide to Land Acquisition in Georgia, which states that “[t]he grievance procedure for people affected by the project will be described in detail and publicized in
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Social Impact each village at the same time as offer documents are being delivered.”77 Although the community liaison function is primarily a construction contractor responsibility, the
Panel recommends that BP remain engaged in the process and communicate with the community liaisons on a regular basis to ensure that all disputes are resolved in a timely, fair and satisfactory manner. The Panel also recommends that BP and its
Partners publicize the existence of the community liaison teams and disseminate their contact information widely so that the teams are an effective outreach tool.
B. Cultural Heritage Management
1. Cultural Heritage Management Planning
The project ESIAs include Cultural Heritage Management Plans (CHM
Plans) for both Azerbaijan and Georgia. These plans provide for initial surveys of the pipeline corridor in order to identify potential archeological and cultural heritage sites.
Once a site is identified, an evaluation is conducted to determine whether mitigation is necessary. Mitigation measures may include re-routing around the site or excavation of the site prior to construction.
In Georgia, development and implementation of the CHM Plan has been undertaken in partnership with the Center for Archeological Studies (CAS), the Georgian regulatory authority for cultural artifacts. In Azerbaijan, similar work was done in consultation with the Institute of Archeology and Ethnography under the Azerbaijan
Academy of Sciences. In both Azerbaijan and Georgia, a number of archeological sites were discovered during the initial pipeline corridor evaluation. Although re-routings
77 Guide to Land Acquisition and Compensation in Georgia for BTC and South Caucasus Pipeline at 13 (available at http://www.caspiandevelopmentandexport.com/Downloads/BTC/Eng/glac2/glac2.pdf).
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avoided many of these sites, a number of known sites in Azerbaijan and Georgia will
require archeological investigations prior to construction.78
The CHM Plan for Georgia establishes a clear process for evaluating and
managing archeological finds along the pipeline route, consistent with World Bank
Group guidelines. By contrast, the Azerbaijan CHM Plan lacks such specificity, and
consequently there is a risk that conflicts could arise regarding evaluation criteria and
mitigation measures for unexpected finds during construction. The Azerbaijan Late
Finds Protocol prepared in April 2003 does clarify certain important aspects of the original CHM Plan. Nevertheless, the Panel recommends that BP review its CHM
procedures in Azerbaijan to ensure that there is adequate time to plan and implement
mitigation measures for unexpected finds. The Panel also recommends that BP ensure
that the archeologists responsible for monitoring day-to-day construction are in
regular contact with either the relevant government oversight body or a designated
advisory body.
2. Gobustan Reserve
A number of NGOs and other interested observers have raised concerns
about the potential impact of the BTC and SCP pipelines on the Gobustan Cultural
Reserve and the proposed Gobustan State National Park in Azerbaijan. The Panel and its
consultants visited the Gobustan region, reviewed engineering and survey maps of the
region, and discussed the issue with BP engineers. The Panel also raised the issue with
the Ministry of Culture, the agency responsible for management of the reserve, as well as
other local officials onsite. The Panel is satisfied that BP has taken steps to reduce any
78 ESIA Overview at 87, 89 (updated by recent communications in the field).
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Social Impact potential impact on the Reserve. The Panel supports BP’s commitment to include archeologists on site during construction to advise in the event that items of archeological interest are uncovered.
In physical terms, the likelihood of the pipeline impacting negatively on the Gobustan Reserve’s artifacts is remote. In the unlikely event that archaeological remains are discovered during pipeline construction, appropriate measures appear to be in place to evaluate the significance of the finds and either to excavate and preserve the artifacts or, as appropriate, to effect a rerouting of the pipeline to bypass the find.
Of potentially greater threat to the petroglyphs than the presence of the pipelines is greater ease of access to the Djingir Dag site via the pipeline right of way.
Prior to pipeline construction, access to this site was uncontrolled but difficult because of poorly defined access across difficult terrain. Public access to the site via the pipeline access and inspection road will be considerably easier. If the site is properly controlled and managed this ease of access could be a positive feature as more people would have the opportunity of appreciating the cultural heritage of Azerbaijan. The Panel recommends that BP closely monitor the area post-construction, both to avoid harm arising from additional traffic in the area, and to measure the progress of the habitat restoration and rescue plans. The Panel also recommends that BP work with the
Ministry of Culture and Azerbaijani authorities to create an effective plan for protecting the Gobustan petroglyphs closest to access roads built for pipeline construction.
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Sustainable Investment
Section VII
Sustainable Investment
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Sustainable Investment
This section sets forth the Panel’s vision of the Caspian Projects as an
opportunity to create a model for investments in extractive industries that will leave a
lasting positive legacy in the host countries. This extraordinary challenge requires BP and its Partners to go beyond mitigating the potential negative impacts of developing the region’s oil and gas reserves to the goal of leveraging that development to deliver
tangible, broad-based benefits to the host communities. The Caspian Projects offer a
unique opportunity to get it right and avoid problems that have plagued so many other
extractive industry projects. In this section the Panel suggests a number of ways in which
BP and its Partners can take advantage of this historic opportunity.
The Panel recognizes that BP and its Partners cannot address on their own
the barriers to sustainable economic development of Azerbaijan and Georgia. Successful
sustainable development will require at a minimum a joint effort by private sector
investors such as BP, international financial institutions such as the World Bank and the
EBRD, state and private donors, states with strategic and/or historic interest in the region,
local and international NGOs and, most critically, the peoples and governments of the
states involved. Even with such cooperation and collaboration, achieving sustainable
economic development is far from certain. At the same time, without a joint effort,
failure is much more likely.
Sustainable development is in the interests of all of these actors. For
example, the U.S. government has devoted ten years and enormous diplomatic efforts to
encourage development of these pipelines; now that they are being built, it is incumbent
upon it and all other interested actors to play their part in helping this region to take full
and broad-based advantage of the development opportunity.
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A. BP’s Existing Investment Programs
BP and its Partners have already initiated meaningful efforts to broaden
their investment in the Caspian region beyond the core revenue-producing projects. BP
and its Partners have committed to three types of supplemental investment: a
Community Investment Program (CIP), an Environmental Investment Program (EIP) and
a Social Investment Program (SIP). These investment efforts provide the context for the
Panel’s recommendations related to sustainable development.
1. Community Investment
The CIP grows out of the recognition by BP and its Partners that
construction of the pipelines will have short-term negative and/or disruptive
consequences in many communities along the pipeline routes, including disruption of
local infrastructure, increased traffic, noise pollution and an influx of temporary workers.
Investment in community projects can help mitigate these adverse impacts, and also has
the potential to contribute to sustainable development. Community investment is an
important component of the RAPs.
BP’s initial involvement with community investment centered on AIOC’s programs in the vicinity of the Sangachal Terminal. These programs included the refurbishment of local schools, the provision of small-scale village infrastructure and support for certain educational and cultural programs. Community investment along the
BTC and SCP pipeline corridor presented a new and greater challenge, as it involved more than 150 affected communities. To meet this challenge, BP and its Partners have developed the CIP, a grant program under which individual projects will be undertaken by national and international NGOs, local authorities and communities.
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Implementation of the CIP is underway in Azerbaijan, Georgia and
Turkey. To date the BTC and SCP consortia have committed approximately $20 million to the CIP divided equally among Azerbaijan, Georgia and Turkey over a period of three years. The first grant process for Azerbaijan and Georgia was announced in 2002: four grants were made in Azerbaijan ($1.5 million each to Save the Children and International
Rescue Committee for community mobilization programs, $1.5 million to International
Medical Corps for work on healthcare issues, and $1 million to FINCA for micro-finance projects); and two grants were made in Georgia ($2.5 million each to CARE and Mercy
Corps for community mobilization). Grants were not made directly to local NGOs in large part because the CIP conditioned eligibility on the proven capacity to manage a substantial amount of money. Only one Azerbaijani and no Georgian NGO met this requirement. However, the CIP grantees have local partners in Azerbaijan and Georgia.
BP and its partners plan future disbursements of CIP funds during the three-year construction period, including smaller grants to local NGOs.
2. Environmental Investment
BP and its Partners have announced an EIP for Azerbaijan, Georgia and
Turkey associated with the BTC and SCP pipelines and have issued certain Requests for
Proposals in connection with this program. Based on materials released to date, the principal objective of the EIP is to promote and conserve biodiversity.79 As yet no specific funds have been directed or awarded under the EIP.
79 See Summary, Request for Proposal for the Provision of Environmental Investment Programme (Turkey); Request for Proposals (RFP) - For Environmental Investment Programme for Baku-Tbilisi-Ceyhan (BTC) and Southern Caucasus Pipeline (SCP) Pipeline projects - Azerbaijan (Feb. 21, 2003).
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3. Social Investment
BP has expressed an intention to engage in social investment spending in
the three project countries. As with the CIP, BP is building on ongoing social investment
work. BP and its Partners have given priority to institutional development and capacity
building at the local and national levels including in areas such as local business
development and SME growth, in-kind and technical assistance to national energy-related
and economic development plans, the promotion of effective civil society institutions and
the enhancement of educational capacity. For instance, the Enterprise Center, discussed
in detail in Section IV, is an excellent example of a social investment designed to create
business opportunities for and provide technical assistance to local Azerbaijani SMEs.
BP also has funded training programs for journalists, supported programs run by the
Citizens Democracy Corps, and is a founding member of the Business Development
Alliance. To date, there has not been a public estimate of the aggregate resources BP and its Partners are willing to commit to the social investment initiative.
B. Recommendations for Investment in Sustainable Development
The Panel applauds BP’s support for CIP, EIP and social investments.
The experience of the CIP to date, however, and the observations of experts and the Panel itself, suggest that these investment programs could achieve more in the way of sustainable development if they were the subject of a more holistic structure and approach. For example, the Panel observed firsthand that in areas designated for reforestation and biodiversity protection under programs advocated by international
NGOs, local villagers are chopping down trees to meet their basic fuel needs. Such environmental initiatives need to take social baseline data into account, because unless basic human needs are met the success of investments in forestry and biodiversity are
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likely to be at risk. A holistic approach could also facilitate the realization of possible
synergies between various investment priorities: for example, investments in the tourism
industry could benefit from environmental initiatives in the region, and environmental
investments and the development of an agricultural sector should be mutually reinforcing.
The Panel recommends the creation of a vehicle, such as a Caspian Development
Fund, from which all investment program monies would come going forward –
whether directed at communities along the pipeline, at enhancing biodiversity and other environmental priorities, or at broader social development objectives.
The Caspian Development Fund could take the form of a non-profit foundation that would oversee all investment in sustainable development in the three
countries and serve as a repository for other donations and as a facilitator of public-
private partnerships. Such a foundation also could provide opportunities for BP to
leverage its investments in the region through partnerships with development agencies
and other entities that also engage in capacity building and sustainable development
initiatives in the region.
The Panel applauds the commitments BP and its Partners have already
made for community investment during the pipeline construction period. At the same
time, BP will be an important, long-term actor in the economies of Azerbaijan, Georgia
and Turkey, and it seems appropriate that BP’s investments in sustainable development in
the region should match the scale, scope and duration of its commercial engagement in
the region. While the Panel does not suggest a figure or a specific funding formula for
this investment, it is the Panel’s view that the amount dedicated to the Caspian
Development Fund should be a significant multiple of the $20 million already announced
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for the CIP. The Panel recommends that BP announce a clear commitment to
investing in sustainable development in the Caspian region as a whole; that it extend
this commitment beyond the construction period and to the full lifespan of the Caspian
Projects; and that BP identify a secure, dedicated, long-term funding stream — based,
for example, on the revenue generated per unit of oil and gas throughput and/or production over the life of the Projects — sufficient to meet this commitment and to make a lasting impact on the region. The Panel further recommends that BP try to leverage its investment through partnerships with other international development institutions active in the region.
BP would benefit from a broad range of input from regional stakeholders on the priorities and appropriate means for maximizing the impact of its sustainable development investment. The region as a whole would benefit from increased engagement by civil society; such engagement could lead to greater accountability for governments, more robust and informed debate about public issues and improved government decision-making. For example, greater participation by the public and civil society in Azerbaijan and Georgia in determining government expenditure priorities could help ensure that expenditures of project-related revenues will yield the broadest possible benefits and enjoy the greatest public support. The Panel recommends that significant investments from the Caspian Development Fund should be directed at building and strengthening civil society in the region. These investments should build cross-sector capacity in civil society and create space in which civil society can operate.
Specifically, the Panel recommends that BP focus its investment on in- country, cross-sector capacity-building in civil society through initiatives that improve
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technical proficiency. Possible approaches to strengthening technical capacity
include:
• Partnering with NGOs, international organizations and/or local universities to offer training for budget advocates, journalists, trade unions, local NGOs, academia and other elements of civil society in the technical skills needed to comment meaningfully on government budget processes;
• Establishing training courses to bring together interested parties from government agencies, universities, the private sector and NGOs that follow the main themes of the EIP: habitat management (forest, wetlands, mountains, rivers, marine), analytical techniques (organic and inorganic chemistry, biological assays, microbiology) and environmental management systems (monitoring, auditing); and
• Funding training programs to enhance management, organizational, project monitoring and advocacy skills of local NGOs.
The Panel also endorses the recommendation of the Open Society Institute that BP consider funding and otherwise supporting the creation of a long-term vehicle for the stakeholders in the host countries – civil society, industry, project investors and
perhaps government – to engage with each other on the impacts of the development and
transport projects and the options that are available for utilizing or distributing the resulting wealth. Such a vehicle could take the form of local, national or regional advisory bodies that could engage in dialogue on the impacts, challenges and opportunities of the Caspian Projects.
Another important component of the long-term sustainable development of Azerbaijan and Georgia is the enhancement of education and skills. Azerbaijan and
Georgia benefit from relatively highly educated workforces. The Panel welcomes the
announcement by BP and its Partners that education and skills development will be a
focus of their social investment spending. The Panel recommends that BP’s sustainable
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development investment should emphasize investment in education and skills
development.
Among the impediments to Azerbaijan and Georgia attracting foreign
direct investment and sustaining domestic economic growth and development are an
unreliable energy supply and an underdeveloped banking system. The Panel
recommends that, in cooperation with the host governments, other donors and development agencies, BP should structure its investment in sustainable development with a view towards building reliable and well-functioning energy and banking sectors in Azerbaijan and Georgia, which are essential preconditions for the effective functioning of the domestic economy and for attracting additional foreign direct
investment.
In the process of establishing the CIP, EIP and SIP, BP already has
identified a number of other specific areas in which investment would be desirable. The
Poverty Reduction Strategy Papers (PRSP) developed by the Governments of Azerbaijan
and Georgia are also an important guide for shaping an investment strategy in these
countries. In addition to considering the broad PRSP objectives, the Panel suggests a
number of additional priorities for investment in sustainable development:
• Sustainable agriculture, which may be the most likely non-energy sector to develop as an important component of a diversified economy in Azerbaijan and Georgia;
• Tourism, especially in the Bakuriani area of Georgia, but also in connection with other sites of cultural significance and natural beauty;
• Support for SMEs, especially efforts to enhance access to affordable capital;
• Telecommunications, which might include BP allowing the utilization of excess capacity, if it exists, of the fiber optic cable running the length of the pipeline route; and
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• Investments directed at restoration of the marine environment and, to the extent possible, the fisheries resources of the Caspian Sea, which have already been damaged significantly by Soviet-era energy development and such other causes as sewage disposal in feeder rivers.
In making these recommendations, the Panel is mindful of the obstacles to sustainable development in the Caspian region and of the fact that BP, no matter the scale of its investment in sustainable development, cannot alone achieve its best intentions of making the Caspian Projects a template for future sustainable development of natural resources. The Panel is of the view, however, that these intentions cannot be met with anything less than a sustained and guaranteed commitment by BP of significant resources, carefully managed and directed in a coordinated fashion, towards building the infrastructure and capacity that will enable the people of the Caspian region to benefit from the Caspian Projects.
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Conclusions
Section VIII
Conclusions
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Conclusions
The Caspian Projects provide BP with an opportunity to make a positive
and lasting contribution to the economic and social development of Azerbaijan, Georgia
and Turkey. Equally significant is the opportunity for BP to create a template for
responsible commercial investment in transition and developing economies by multinational corporations in the extractive industries. In a sector often accused of failing
to take proper advantage of the opportunity to tie resource extraction with broader
development activities, BP is clearly seeking to set a higher standard. The Panel
commends BP for its willingness to embrace this challenge.
Throughout this Interim Report, the Panel has recommended that BP
strengthen its commitment to environmental protection, local economic development and
social investment along the pipeline route and throughout the region. The Panel recognizes that there are significant obstacles to accomplishing these objectives. The
Panel hopes that BP will tackle these obstacles and work with local stakeholders to help ensure that the negative environmental and social impacts of the Caspian Projects are minimized and that the potential positive effects of the Projects are maximized for all of
the people throughout the region.
By focusing on broad-based social investments, transparency initiatives
and SME development, while at the same time creating effective monitoring mechanisms
for the Caspian Projects that include input from local communities and civil society, BP
has an opportunity to have a positive impact in the region. BP should strive to ensure that
its investments – both in the Projects and in the broad-based sustainable development of
the region – are responsive to local needs and local concerns.
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Conclusions
More generally, the Panel has identified a number of potential lessons from its consideration to date of the Caspian Projects that might bear on future extractive industry investments. First, in the Panel’s view, early and frequent consultation with local governments and civil society over the environmental and social impacts of such commercial projects is a critical step to building a strong foundation for cooperation and support as the projects move forward. Local and international NGOs should be consulted at the earliest possible time to ensure that their concerns are understood and addressed.
Second, investors such as BP should view the environmental, economic, social and human rights impacts of these commercial projects holistically to ensure that the cumulative impacts of the projects are assessed rather than viewing specific impacts in isolation. Third, monitoring efforts that include local participation, both during and after construction, are essential for ensuring that the investors’ commitments are realized and that there are open lines of communication between the investors and affected parties.
Finally, investors in the extractive industries should not view their social responsibility as ending with short-term community investment programs during construction. Short-term community investment initiatives should be accompanied by a long-term commitment to sustainable development through the lifetime of the commercial projects. One means of accomplishing such a long-term commitment is by creating a dedicated funding stream based on project-related revenue (or an advance approximation) and committing this funding stream to broad-based sustainable development initiatives.
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Conclusions
As noted at the outset of this Interim Report, the Panel welcomes and invites comments on the Panel’s Interim Report and future work plan and looks forward to working with all stakeholders as the Panel continues to engage on issues in the Caspian region.
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Appendices
Section IX
Appendices
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Appendix A
Partial List of Meetings and Consultations
Government Officials - Azerbaijan Vagif Akhundov, Head, State Protection Services Farhad Aliyev, Minister of Economic Development Yagub Aliyev, Executive Power, Garadag and Gobustan Districts Huseyn Bagirov, Minister of Environment and Natural Resources Rasim Dadashev, Chairman, Oil and Chemistry Department, Cabinet of Ministers Nazim Imanov, Member, Azerbaijani Parliament Garib Mamedov, Chairman, State Committee on Land and Mapping Asya Manafova, Chairperson, Natural Resources, Energy and Ecology Commission, Azerbaijani Parliament Aydin Mirzazade, First Vice Chairman, Social Policy Commission, Azerbaijani Parliament Niyazi Hajiyev, State Protection Services Arif Rahimzada, First Deputy Speaker, Azerbaijani Parliament Artur Rasizada, Prime Minister Sattar Safarov, Chairman, Economic Policy Commission, Azerbaijani Parliament Elmira Suleimanova, Human Rights Ombudsman
Government Officials - Georgia Levan Ambarcumov, Local Representative, Tsikhisdjvari Sakrebulo Omaz Chkheidze, Head of the Department of Tourism of Borjomi Administration Nino Ckhobadze, Minister of Protection of Environment and Natural Resources Roman Gotsiridze, Head of Budget Office, Parliament of Georgia Nodar Grigalashvili, Member of Parliament, Borjomi Region Zaza Jokhadze, Governor of Borjomi Lasha Kopaliani, Head of Economic Service of Borjomi Governor’s Office Tedo Melikidze, Head of Organizational Department of Borjomi Administration Teimuraz Mosiashvili, Governor of the Samtskhe-Javakheti Region Eduard Shevardnadze, President of Georgia
Government Officials - United Kingdom Tamsin Ayliffe, Humanitarian Specialist, Department for International Development Linda Duffield, Director, Wider Europe, Foreign & Commonwealth Office Jessica Irvine, Head, Europe and Central Asia Department, Department for International Development Rurik Marsden, EBRD Department, Department for International Development Andrew Tucker, U.K. Ambassador to Azerbaijan
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Government Officials - United States Sanjeev Aggarwal, Senior Environmental Impact Analyst, Overseas Private Investment Corporation Peter S. Argo, Director, Office of Energy & Environment, Agency for International Development Jeffrey Baker, Department of the Treasury Anna M. Borg, Deputy Assistant Secretary, Bureau of Economic and Business Affairs, Department of State Matthew J. Bryza, Director for the Aegean, Caucasus, and Central Asia, National Security Council Bud Coote, Directorate of Intelligence, Central Intelligence Agency Brian B. Cox, Director, Office of Russia, Eastern Europe and Central Asia, Department of the Treasury Abigail M. Demopulos, International Economist, Office of Multilateral Development Banks, Department of the Treasury Virginia Dondy Green, Vice President for Investment Policy, Overseas Private Investment Corporation Michael Farbman, Caucasus Mission Director, Agency for International Development Eric F. Green, Special Assistant, Caspian Basin Energy Diplomacy, Department of State Marc Grossman, Undersecretary for Political Affairs, Department of State Jeff Hawkins, Kazakhstan Desk Officer, Department of State Harvey A. Himberg, Deputy Vice President, Investment Policy, Director, Environmental Affairs, Overseas Private Investment Corporation Robert F. Ichord, Jr., Chief, Energy and Infrastructure, Agency for International Development Basil Kiwan, Investment Insurance Officer, Overseas Private Investment Corporation Keith Kozloff, Senior Environmental Advisor, Office of International Development Policy, Department of the Treasury Bryan H. Kurtz, Special Projects Coordinator, Agency for International Development Alan Larson, Undersecretary for Economic, Business and Agricultural Affairs, Department of State Nancy Lee, Deputy Assistant Secretary, Eurasia and Latin America, Department of the Treasury Jules Leichter, International Economist, Office of Middle East and South Asian Nations, Department of the Treasury Steven R. Mann, Senior Advisor, Caspian Basin Energy Diplomacy, Caspian Coordinator, State Department Anthony Marcus, Deputy Director, Office of Russia, Eastern Europe and Central Asia, Department of the Treasury Richard Miles, U.S. Ambassador to Georgia Geoffrey Minott, Economist, Agency for International Development Andrew S. Natsios, Administrator, Agency for International Development Troy E. Pederson, International Economist, Office of International Energy and Commodity Policy, Department of State Mark Schlagenhauf, Global Oil and Gas Advisor, Agency for International Development
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William Schuerch, Deputy Assistant Secretary, Multilateral Development Banks & Special Development Institutions, Department of the Treasury Wendy Silverman, Bureau of Democracy, Human Rights and Labor, Department of State David Smith, Land Reform Specialist, Agency for International Development James C. Williams, Director, Insurance, Overseas Private Investment Corporation Ross Wilson, U.S. Ambassador to Azerbaijan
State-Owned Enterprises Natik A. Aliev, President, State Oil Company of Azerbaijan Republic Giorgi Chanturia, President, Ambassador/Special Advisor to the President of Georgia, Georgian International Oil Corporation Samir Sharifov, Executive Director, State Oil Fund of Azerbaijan Republic David Tvalabeishvili, Manager, Strategic Planning, Georgian International Oil Corporation
International Financial Institutions Anna Akhalkatsi, International Finance Corporation Ronald Anderson, Chief Environmental Specialist, International Finance Corporation Clive Armstrong, Economist, International Finance Corporation John Balafoutis, Assistant to the President, World Bank William Bulmer, Manager, Environmental and Social Department, International Finance Corporation Hyun-Chan Cho, Investment Officer, Oil, Gas, Mining & Chemicals Department, International Finance Corporation Alistair Clark, Director, Evaluation, Operational and Environmental Support - Environment Department, European Bank for Reconstruction and Development Donna Dowsett-Coirolo, Director, South Caucasus Country Unit, Europe and Central Asia Region, World Bank Nikolay Hadjiyski, Resident Representative (Georgia), European Bank for Reconstruction and Development Assaad Jabre, Vice President, Operations, International Finance Corporation Rashad Kaldany, Director, Oil, Gas, Mining & Chemicals Department, International Finance Corporation Jean Lemierre, President, European Bank for Reconstruction and Development Jean-Patrick Marquet, Principal Banker, Natural Resources, European Bank for Reconstruction and Development Keith Martin, Advisor to the Executive Vice President, Multilateral Investment Guarantee Agency, World Bank Shahbaz Mavaddat, Associate Director, Small and Medium Enterprises Department, International Finance Corporation Mariam Megvinetuhutsesi, Associate Banker, European Bank for Reconstruction and Development Patricia Miller, Senior Environmental Specialist, Environment and Social Development Department - Investment Support Group, International Finance Corporation Shawn Miller, Social Development Specialist (Azerbaijan & Georgia), Environmental and Social Development Department, International Finance Corporation
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Farzin Mirmotahari, SME Program Officer, International Finance Corporation Danielle Montgomery, Senior Investment Office, Oil, Gas & Chemical Department, International Finance Corporation Thomas Moser, Head of Office (Baku), Regional Representative, Natural Resources, European Bank for Reconstruction and Development John Odling-Smee, Director, European II Department, International Monetary Fund Charlotte Philipps, Senior Banker, Natural Resources, European Bank for Reconstruction and Development Ted Pollett, Social Development Specialist (Turkey), Environmental and Social Development Department, International Finance Corporation Peter Reiniger, Business Group Director, Energy, European Bank for Reconstruction and Development Bert van Selm, Economist, International Monetary Fund Mark Sullivan, U.S. Executive Director, European Bank for Reconstruction and Development Felicia Swanson, Investment Officer, International Finance Corporation Yasmin Tayyab, Civil Society Coordinator, Corporate Relations, International Finance Corporation John Wakeman-Linn, Deputy Division Chief, International Monetary Fund Peter Woicke, Managing Director, World Bank and Executive Vice President, International Finance Corporation James Wolfensohn, President, World Bank
Individuals, Media and Other Stakeholders 525 (Rashad Mejid) Alat Municipality (Sharafaddin Gadirov) Azadliq (Rovshan Hajiyev, Gunduz Tahirli) Borjomi-Kharagauli National Park (Levan Chumburidze) Borjomi Media (Ketevan Gazaevi, Valerian Lomadze, Alexi Nozadze) Borjomi Region (Prondos Abeladze, Amiran Gogaladze, Marina Jabakhidze, Ketevan Khachidze, Zurab Koburidze, Z. Kurdadze, Liana Lomidze, Otar Magradze, Chaduneli Nugzar, Tanguli Ortoidze) Ekho (Shahin Abbasov, Dilber Hanin, Rauf Talyshinsky) Green Party (George Gachechiladze) Hydrology Expert (Telman Zeynalov) Musavat Party (Isa Gambar) Sangachal Terminal Expansion (Reykhan Abdullayeva, Bayram Aliyev, Huseyn Babayev, Shahyar Babayev, Shakir Bakhish Shahbazov, Hagigat Baylarova, Ibish Gahramanov, Sardar Hajiyev, Minara Hasanova, Ibragim Ibragimov, Fagan Mammadov, Azizkhanim Mammadova, Akhmad Mekhdiyev, Bakhtiyar Najafov, Nugay Najafov, Mubariz Novruzov, Baybala Soltanov) Sangachal Terminal Expansion Project (Mamed Kuliyev) State University of Tbilisi, Georgia (Zaal Kikodze) Turan Information Agency (Gasan Guliyev, Ilham Shaban) Turan News Agency (Mehman Aliyev) Sharg News Agency(Kamalya Mustafayeva)
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Yeni Musavat Newspaper (Vusal Gasimili) Zerkalo (Elchin I. Shikhlinsky)
Multinational Institutions Urkhan K. Alakbarov, National Coordinator, Human Development Reports, Azerbaijan, United Nations Development Programme
NGOs/Think Tanks Association for the Protection of Landowners’ Rights (Jaba Ebanoidze, David Giorgadze) Azerbaijan Academy of Sciences (Arif Abbasov) Azerbaijan Green Movement (Farida Huseinova) Azerbaijan National Academy of Sciences (Akif A. Ali-Zadeh, Elchin H. Sultanov) Azerbaijan Society for the Protection of Animals (A. Garayev, G. Rahimov) Bank Information Center (Karen Decker, David Hunter, Graham Saul) Care International (Marie Cadrin) Caspian Environmental Laboratory (B. Roddie) Catholic Relief Services (Gloria Peterson-Ayigah) Caucasus Environmental NGO Network (Nana Janashia) CEE Bankwatch Network (Manana Kochladze) Center for Archaeological Studies (Irine Gambaschidze, Vakhtang Licheli) Center for International Environmental Law (Ayse Kadayifci, Daniel B. Magraw, Jr., Heidi Neuhoff, Marcos Orellana, Anne Perrault) Centre for Independent Social Research (J. Eyvazov) Citizens International (Thomas Stephens, John Bruce Wells) Crude Accountability (Megan Lee, Kate Watters) Ecological Society “Ruzgar” (Islam Mustafaev) Entrepreneurship Development Foundation (Sabit A. Bagirov) Environmental Information, Education and Public Awareness, NIBS (Samir Isayev) Fish Research Institute of Azerbaijan Republic (Fikret Jafarov) Friends of the Earth (Steve Herz, Nick Rau, Carol Welch) Georgia Academy of Sciences (G. Buachidze, Erekle Gamkrelidze) Global Fairness Initiative (Steven Bennett) Helsinki Citizens’ Assembly (Arzu Abdullayeva) Human Rights Watch (Elizabeth Andersen, Arvind Ganesan, Jonathan Sugden) International Medical Corps (Adam Sirois) International Rescue Committee (Pamela F. Husain) Kurdish Human Rights Project (Anders Lustgarten) Mercy Corps (Steve Power) NGO Association for Development and Environmental Research (L. Guluzada) Noah’s Ark Centre for the Recovery of Endangered Species (Irakli Macharashvili) Open Society Institute (Farda Asadov, Svetlana Tsalik) Organization for the Protection of Human Rights and Prisoners’ Rights (Zaal Zerekidze) Platform (Greg Muttitt) Save the Children (Tryggve Nelke) Second ECA NGO Working Group on the World Bank (Keti Dgebuadze) Social Assessment, LLC (Ayşe Kudat)
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Society for Democratic Reforms (Razi Nurullayev) The Caucasian Institute for Peace, Democracy and Development (Ghia Nodia) The Corner House (Nicholas Hildyard) The Eurasia Foundation (Margo Squire) The National NGO Forum of Azerbaijan (Azay A. Guliev) Transparency International (Rena Safaraliyeva, Miguel Schloss) U.S.-Caucasus Institute (Zurab Qarumidze) World Vision (Michael McIntyre, Ulfat Mehtiyev) World Wide Fund for Nature (Francis A. Grant-Suttie, Kakha Tolordava, Clive Montgomery Wicks, Nugzar Zazanashvili) Young Lawyers Association (Besarion Abashidze)
Private Sector AES (Ignacio Iribarra, Galyn Alnuyazov) Asymmetric Associates (Robert Corzine) Atkins Design Environment & Engineering (David Shilston) Azerkorpu (Alamdar Galandarov) Bakond (Elkhan Sadikhov) BMG2 (Aftandin Geydarov) Cambridge Energy Research Associates (Thane Gustafson, Katherine Hardin, Matthew J. Sagers, Daniel Yergin) Canub Sahaya Tikinti (Halis Zohrabov) Dzelkva, Ltd. (D. Kikodze, M. Tavartkiladze) Encotec (Faik Rzayev) Georgian Glass & Mineral Water Co. N.V. (Badri Japaridze, Mamuka Khazaradze, Zaza Kikvidze) Global Pipeline Consulting (R. Michael Cowgill) KhazarDenizNeftGasTikinti (Nadir Amiraslanov) Konteks (Uriy Kasimov) MCG (Emin Aliyev) MiniMax (Ibragim Baharov) PA Consulting Group (Dean White) Piper Rudnick LLP (Gary J. Klein, Senator George Mitchell, Sara A. Robinson) Rem Services (Afrail Shirinov) Rovshan Oguz (Vidadi Abdullayev) Salford (Peter Nagle)
Country Advisors to the Panel Marco Borsotti, United Nations Development Programme (Azerbaijan) Alexander Rondeli, Georgian Foundation for Strategic and International Studies Ilter Turkmen, Turkish-Greek Forum and Turkish-Armenian Reconciliation Commission
Consultants to the Panel Daniel Bates, Hunter College of the City University of New York Richard Fuggle, University of Cape Town
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Appendix B
Terms of Reference
Establishment of Panel
BP has established an independent external panel, the Caspian Development Advisory Panel (CDAP), as part of its plan to ensure that the Baku-Tbilisi-Ceyhan (BTC) pipeline is a world class model project. The Panel, which has a three-year remit, will commence its work in early 2003, and will provide objective advice to the company on the economic, social and environmental impacts of the pipeline project in Azerbaijan, Georgia and Turkey, generally, and in areas closest to the 1,760-kilometer pipeline in particular.
While the primary focus will be on the BTC pipeline, the Panel will have an opportunity to look at other related BP activities and plans in the region. This will include the Azeri- Chirag-Gunashli (ACG) oilfield and the Shah Deniz gas field developments, including the Baku-Tbilisi-Erzurum Gas Export Pipeline, which will run parallel to BTC through Azerbaijan and Georgia. (BTC, ACG and Shah Deniz are all BP operated.)
Principal tasks will include, but not be confined to the following:
• Assess BP’s plans to manage the environmental, social and economic impacts of the projects in Azerbaijan, Georgia and Turkey, both at the route level and, more generally, at the regional level. Make recommendations for improvement.
• Examine the application of BP’s policies regarding the projects and critically appraise the impact of the projects.
• Advise on the appropriate focus of social and community activities to enable BP and its partners to make a positive difference to the economies and societies of Azerbaijan, Georgia and Turkey.
The Panel’s role will be an advisory one and it will have no executive authority or responsibility in relation to the Project.
The Panel will be funded by the BP Group. It will be assisted by local representatives in each country and have its own Secretariat based at the Washington, D.C. law firm of Covington & Burling. The Panel has established a website (www.caspsea.com) and an e-mail address [email protected]. The Panel requests that any interested party submit information to the Secretariat for the Panel’s review.
The Panel will report to the BP Group Chief Executive. Liaison between BP and the Panel shall normally be through a senior BP representative nominated by the BP Group Chief Executive.
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Membership
The Panel shall have 4 members (including a Chairman) who shall be appointed by the BP Group Chief Executive but who shall otherwise have no ongoing direct connection with BP. The Panel will be chaired by Jan Leschly (Chairman & CEO, Care Capital and former CEO of SmithKline Beecham). The other members are Stuart Eizenstat, former US Ambassador to the EU, Under Secretary of Commerce, Under Secretary of State and Deputy Secretary of the Treasury, currently a partner with Covington & Burling; Jim MacNeill, Canadian diplomat and policy adviser on environment, energy and sustainable development, former Secretary General of the World Commission on Environment and Development (the Brundtland Commission) and former Chairman of the World Bank’s Independent Inspection Panel; and Mohamed Sahnoun, former ambassador and adviser to the President of Algeria, Special Envoy of the Secretary General of the UN and member of the Brundtland Commission.
Timetable
Panel Members shall meet formally as a group at least twice a year and in addition will make at least one visit of around one week in length to the Project area each year.
The Panel may, in agreement with BP, call upon national and international experts and consultants to advise the Members on matters relating to the evaluation and review of the Project.
Reports
The Panel shall aim to issue its first substantive report by the end of 2003. Additional reports shall be issued at least annually thereafter. The substantive reports and findings of the Panel will be made available to the public, after they have been presented to the BP Group Chief Executive and BP has prepared its response.
Funding
The Panel shall be funded by BP independently from the Project.
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Appendix C
Biographies of Panel Members
JAN LESCHLY (CDAP Chairman)
Before founding Care Capital, Mr. Jan Leschly was Chief Executive of SmithKline Beecham PLC (“SB”) from 1994 to 2000. He joined SB as Chairman of the Worldwide Pharmaceutical business in 1990 and was elected to the Board of Directors in 1990.
Before joining SB, Mr. Leschly served as President and COO, Squibb Corporation. He joined Squibb in 1979 as Vice President, Commercial Development and in 1984 he was elected Group Vice President and a Member of the Board of Directors with responsibility for the Worldwide Pharmaceuticals Products Group. Prior to this he worked for seven years with Novo Nordisk, where he served as Executive Vice President and President of the Pharmaceutical Division.
Mr. Leschly is a member of the Boards of Directors of the American Express Company, Viacom Inc. and the Maersk Group and serves on the International Advisory Board of DaimlerChrysler AG. He is a Member of the Business Council and the Emory University Goizueta Business School Dean’s Advisory Council.
Born in Denmark, Mr. Leschly received a Master of Science in Pharmacy from the Copenhagen College of Pharmacy and a B.S. in Business Administration from the Copenhagen School of Economics and Business Administration.
STUART EIZENSTAT
Mr. Stuart Eizenstat served as U.S. Ambassador to the European Union from 1993 to 1996. He also has served as U.S. Deputy Secretary of the Treasury, Under Secretary of State for Economic, Business and Agricultural Affairs and Under Secretary of Commerce for International Trade. He received the highest departmental awards for his service from Secretary of State Warren Christopher, Secretary of State Madeline Albright, and Secretary of the Treasury Lawrence Summers. From 1977 to 1981 he was President Jimmy Carter’s Chief Domestic Policy Adviser and Executive Director of the White House Domestic Policy Staff. Mr. Eizenstat has practiced law for twenty years in Atlanta and Washington, and he joined the law firm Covington & Burling as a partner in 2001.
During the Clinton Administration, Mr. Eizenstat had a prominent role in the development of key international initiatives, including the negotiation of the Transatlantic Agenda with the European Union, the development of the Transatlantic Business Dialogue among European and U.S. CEOs, the negotiation of agreements with the European Union regarding the Helms-Burton Act and the Iran-Libya Sanctions Act, the negotiation of the Japan Port Agreement, and the negotiation of the Kyoto Protocol on global warming. Mr. Eizenstat also was the Administration’s leader on Holocaust-era issues as Special Representative of the President and Secretary of State, and he
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successfully helped negotiate major agreements with the Swiss, Germans, Austrians, and French. He has received the highest awards for his work from the Department of State and Treasury. He has been awarded the Knight Commander’s Cross from the Federal Republic of Germany and the Legion of Honor from the Government of France. He is the author of “Imperfect Justice: Looted Assets, Slave Labor, and the Unfinished Business of World War II” (Public Affairs 2003).
He received his J.D. from Harvard University. Prior to entering law school, he earned an A.B., cum laude and Phi Beta Kappa, in political science from the University of North Carolina at Chapel Hill.
JIM MACNEILL
Mr. Jim MacNeill enjoys nearly four decades of experience as a policy advisor to leaders of governments, industry and international organizations in the fields of energy, natural resources, management, environment and sustainable development. Until recently Chairman of the World Bank’s Independent Inspection Panel in Washington, D.C., he is now a member of several boards including the Woods Hole Research Center, Woods Hole, Mass., the Wuppertal Institute on Climate and Energy Policy, Germany, and Chairman Emeritus, the International Institute for Sustainable Development (IISD), Canada. He also serves on the Jury of the Volvo Environment Prize, Sweden.
From 1983-87, Mr. MacNeill was Secretary General of the World Commission on Environment and Development (the Brundtland Commission) and lead author of the Commission’s world-acclaimed report, “Our Common Future.” He served for seven years as Director of Environment for the Organization for Economic Cooperation and Development and was the Canadian Ambassador and Commissioner General responsible for the UN Conference on Human Settlements in Vancouver in 1976. He was a founding member of the Japanese Institute for Global Environmental Strategies and the China Council. Earlier, he was a Deputy Minister (Permanent Secretary) in the Government of Canada.
Mr. MacNeill holds a graduate diploma in economics and political science from the University of Stockholm and bachelor degrees in science (math and physics) and mechanical engineering from Saskatchewan University. He is the author of many books and articles and the recipient of a number of honorary degrees and awards, national and international, including the Order of Canada, his country’s highest honor.
MOHAMED SAHNOUN
On 20 January 2003, Secretary-General Kofi Annan extended the appointment of Mr. Mohamed Sahnoun, a national of Algeria, as his Special Adviser to follow developments in the Horn of Africa region. Previously, Mr. Sahnoun served as: Special Adviser to the Director-General of the United Nations Scientific and Cultural Organization (UNESCO) for the Culture of Peace Programme; Special envoy of the Secretary General on the Ethiopian/Eritrean conflict (1998-1999); and Joint Representative of the UN and the
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OAU in the Great Lakes region (1997). He is also a member of the Board of the University for Peace, member of the Special Advisory Group of the War-torn Societies Project, member of the Board of International Crisis Group, and Co-Chair of the International Commission on Intervention and State Sovereignty.
Mr. Sahnoun was Special Representative of the Secretary-General of the United Nations to Somalia in 1992. In 1993, he was appointed Special Representative of the OAU in the Congo. In 1994 he was first a fellow at the U.S. Institute of Peace in Washington, D.C. and then a Pearson fellow with the International Development Research Centre in Ottawa, Canada. He was a member of the World Commission on Environment and Development (the Brundtland Commission) in the 1980s, as well as Senior Adviser to the Secretary-General of the United Nations Conference on Environment and Development (UNCED).
During his career, Mr. Sahnoun has been Adviser to the President of Algeria on diplomatic affairs. From 1964 to 1973, Mr. Sahnoun was Deputy Secretary-General of the OAU, and in 1973, he was appointed Deputy Secretary-General of the League of Arab States in charge of the Arab-Africa dialogue. He served as Algeria’s Ambassador to Morocco and Secretary to the Maghreb Union (1989-1990); Ambassador to the United States (1984-1989); Chief of Algeria’s Mission to the United Nations (1982-1984); Ambassador to France (1979-1982); and Ambassador to the Federal Republic of Germany (1975-1979).
Mr. Sahnoun studied first at the Sorbonne University, in Paris, and then at New York University, where he received his Bachelor of Arts and Master of Arts degrees in political science.
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