EXECUTIVE SUMMARY This Section Summarises the Third Quarterly Environmental and Social Report on the Baku-Tbilisi-Ceyhan (BTC) Oil Pipeline

EXECUTIVE SUMMARY This section summarises the third quarterly Environmental and Social Report on the Baku-Tbilisi-Ceyhan (BTC) oil pipeline. The report is a requirement under the conditions agreed with the financial Lenders to the project. It covers developments during the months of July, August and September, 2004. A key objective of the quarterly report is to meet the reporting requirements outlined in the Environmental and Social Action Plan (ESAP). In addition the report provides an opportunity for the project to publish environmental and social information on a regular basis, including all the positive aspects of the project, and make it available to a wide range of stakeholders. In this respect the report compliments internal and external independent reviews and audits that, by their nature, focus on areas where the project can improve its performance. It is hoped that issuing this report as well as publishing project bulletins and external audit and monitoring reports on our website www.caspiandevelopmentandexport.com, will provide transparency and create an environment where dialogue is possible with all our stakeholders including those who have provided project financing. The third quarter (Q3) Report adopts the same structure and uses the same approach as the second quarter Report. Some areas have been expanded or altered in line with the changing nature of the project, while background information on the project has been reduced. Key features of this summary are: • An emphasis on progress and activities that occurred during the reporting period as well as on trends, significant issues and project highlights and initiatives. • More attention to land reinstatement issues given that Right of Way (ROW) clearing and trenching activities are largely completed. • More emphasis on cultural heritage activities, both in recognition of the significant accomplishments in this field and the limited coverage in previous reports. • Greater detail on Management of Change. • Greater detail on the Complaints and follow-up processes. The last two items are in response to feedback from the Lender Group. As always, BTC welcomes feedback so that we can improve future versions of the report. MAIN ACHIEVEMENTS There have been significant achievements during the third quarter of 2004. The following stand out. The project has: • Resumed construction activities on the 17.6 km Borjomi section of the pipeline in August following agreement between the government of Georgia and BTC management on additional security measures. • Advanced construction to the Azerbaijan-Georgia border. • Sustained further improvements in the project’s Day Away From Work Case (DAFWC) frequency • Selected an oil spill response contractor for Azerbaijan and Georgia. A joint-venture partnership with the same contractor is in place for delivery of oil spill response in Turkey. • Launched a $2.4 million Improved Schools Project in Georgia. • Sustained good cultural heritage management throughout the quarter.

• Developed winterization programmes in Azerbaijan, Georgia and Turkey • Produced (with Botaş) a Project Bio-restoration Guide for field use by contractors in Turkey. • Progressed solid waste disposal contingency solutions in Azerbaijan and Georgia. In Azerbaijan a $5 million commitment by BP (BTC $750,000, ACG $4.25 million) to finance capital expenditure for non-hazardous waste landfill in the country that will be built to EU standards. CHALLENGES In addition to the achievements, the project focused on a number of challenges during the quarter. In particular it: • Increased efforts to reduce the length of open trench, introduced Project Open Trench Safety Standard for management and mitigation requirements and reinforced the community safety message • Addressed issues around commissioning and operation of incinerators in Georgia and Azerbaijan. • Began to plan long term bio-restoration by concentrating contractor efforts and resources in Georgia and Turkey. • Highlighted land reinstatement issues in Lots A and B in Turkey. • Stepped up efforts to supplement contractor environmental and social resources to ensure that construction environmental and social issues are managed both proactively and reactively. CONSTRUCTION PROGRESS Rapid progress was made during the quarter along the length of the 1,760km pipeline route. At the end of September 2004, virtually the entire pipeline ROW had been opened. In Azerbaijan construction at river crossings advanced substantially with installation works completed at the Shamkir, Dzegam Chai, Tovus Chai and Hassan Su rivers. Work continued at all the facilities including site works and camps. In Georgia construction activity was concentrated on higher elevation areas that become largely inaccessible in winter. In the Borjomi Special Section the first phase of trench backfilling was largely completed. The block valve programme was two-thirds completed and the check valve programme three-quarters completed. Construction at both pump stations continued. In Turkey progress was made at 19 of the 25 major river crossings with installations completed at the Karasu, Boran and Huseyinli rivers. Work continued at all facilities and the marine terminal at Ceyhan. The weld re-inspection programme that commenced in June continued through this quarter. A total of 3,106 manual welds are being re-inspected for cracks. Just under half have been examined and of these 117 cracks have been identified to the end of September. Of these, 32 have been repaired. Reinstatement typically follows a sequence – Phase 1 (sub-soil reinstatement, restoring original topography, temporary erosion control), Phase 2 (permanent erosion control, topsoil spreading) and Phase 3 (planting/seeding where required). Phase 1 reinstatement has occurred along 460 km or 26% and Phase 2 reinstatement has occurred along 365 km or 20% of the pipeline. (Note in Azerbaijan and Georgia, this is the 12m strip for BTC only)

At the end of September 20,435 people were working on the BTC project, comprising 3,963 workers in Azerbaijan, 5,962 in Georgia and 10,510 in Turkey. Employment of national staff in all three countries exceeded our targets by considerable margins. CONSTRUCTION PHASE: ENVIRONMENTAL AND SOCIAL STUDIES AND SURVEYS Studies and surveys continued to be undertaken in each of the three countries during the third quarter. All Host Government required environmental and social activities relating to the construction phase have now been completed. Five post-Environmental and Social Impact Assessments (ESIAs) studies continued in Azerbaijan. Vulnerable spur-thighed tortoises were removed and relocated from one part of the ROW and European pond terrapins were identified at Kura West prior to relocation - part of the Red Data Book registered species project. Groundwater level monitoring of wells drilled in the Karayazi area was conducted on a monthly basis. In Georgia four post-ESIA studies were ongoing. Three significant architectural properties lying partially within the ROW were avoided by rerouting the pipeline or using special construction techniques. In Turkey progress was made on seven remaining post-ESIA surveys. One – to identify sensitive fauna on the pipeline ROW ahead of construction - was completed. Four others involving reinstatement methods in sensitive areas, landscaping at Ceyhan terminal, the 2004 marine turtle survey at Ceyhan and air quality monitoring at Ceyhan progressed as planned. A project to collect sediment samples at 12 locations near the Ceyhan terminal began in July. A number of chance archaeological finds were made including Antique burial sites, pottery and settlement areas in Azerbaijan. Excavations continued in Azerbaijan and Georgia. In Georgia 260 potential sites or features have now been identified including 40 requiring large-scale excavation or salvage, 12 that were avoided by re-routing and 57 subject to limited excavation. In Turkey three cultural heritage surveys were completed. In July parts of a human skeleton were discovered and the remains excavated and removed to Kars museum. In August the remains of an Antique wall were found and assessed by archaeologists from Gazi University. In September stone foundations were uncovered – excavation was set for October. By the end of September the BTC line was clear for construction in all locations. MANAGEMENT OF CHANGE Project changes with potential environmental or social impact are assessed according to significance – Class I, II and III (the most significant, requiring notification to the Lender Group). During the third quarter there were no Class III changes in any of the three countries. A total of 33 Class I and 7 Class II changes were made during the quarter – one Class I and 1 Class II in Azerbaijan; 10 Class I and 2 Class II in Georgia; and 22 Class I and 4 Class II in Turkey. Class II changes in Azerbaijan related to alterations in the scope of work for the Kura West dual lay river crossing from open cut to micro-tunneling as a result of difficulties around methods and timing. Micro-tunneling was considered an alternative method that would allow the crossing to be executed within the contract period and is environmentally preferable to an open cut crossing.

In Georgia one Class II change involved permitting a total of 30km of open trench instead of 15km as specified in the Georgia ESIA. The increase reflected the creation of two mainline spreads instead of one in the country as well as the requirement to complete construction in high altitude areas before winter. The Project Open Trench Safety Standard was adhered to ensure that community safety risks were minimised. The second Class II change related to the use of a municipal landfill as a contingency solution for a backlog of putrescent waste. Offset measures are being considered as compensation. The four Class II changes in Turkey involved three re-routings following discoveries of significant archaeological finds and another route change caused by geo-technical constraints. Class I changes mostly concerned minor route alterations (26) or design changes (4). Most of the route changes (all in Georgia and Turkey) related either to avoidance of heritage sites or geo-hazards/side slopes or involved reductions in the project’s footprint by minimising land-take. ENVIRONMENTAL AND SOCIAL TRAINING ACTIVITIES Training continued to take place at many levels with the objective of ensuring that all employees, including those of contractors, are effective in their job and able to carry out their environmental and social responsibilities. During the third quarter effort was directed towards training in areas identified as existing or potential weaknesses. Community safety was one area of additional emphasis in response to an incident in Lot C in Turkey where two children drowned in a water-filled trench. A range of methods is used to make the training sessions interesting and informative. Toolbox talks are popular with construction crews and widely used mainly because they are relatively informal, flexible and easily adapted to cover topical issues. The project has developed a suite of toolbox talks that specifically address the common issues emerging from audits, reviews and field inspections. In Azerbaijan the main contractors, CCIC and SPJV, held almost 2,000 toolbox talks in the July-September period covering 17 topics including waste management, pollution prevention, earthworks, dust control, noise control, cultural heritage, erosion control, land reinstatement and the pumping of water. A total of 350 construction contractor employees attended HIV/AIDS, STIs and Alcohol/Drug Abuse courses in camps along the route up to September, 2004. In Georgia, the contractor also continued to carry out toolbox talks covering 12 topics including soil management, spill prevention and response, waste management, pollution prevention, plant translocation plans, site specific sensitivities, water pollution prevention, erosion control, refueling, protection of cultural heritage, reinstatement specification, general housekeeping. Training for new recruits was a focus of activity in Turkey in addition to some refresher courses. A total of 5,199 employees underwent induction training in the quarter - 2,066 employees working on the pipeline, 1,159 employees working at pump station sites and 1,974 employed on construction at the Ceyhan terminal. Additional environmental training was given on the topics of bio-restoration and land reinstatement. Two-day field workshops run by bio-restoration experts were a highlight of the quarter. BTC staff used these workshops to showcase the Turkey Biorestoration Guide that details practices discussed during the workshops and is intended to ensure consistent implementation of best practice. Each of the ROW contractors in Turkey also held numerous toolbox talks on reinstatement and biorestoration topics including topsoil stripping, plant translocation and river crossings.

A social alignment workshop was held in August and attended by representatives from Botaş and each of the main contractors. The workshop compared and shared experiences, sought alignment on key issues and allowed all sides to raise concerns regarding social issues. Training concentrated on community safety including trench safety, traffic and responsibility for third party safety. In Lot C meetings were held to discuss the third party fatalities that occurred in July and explore the responsibilities of foreman, supervisors and workers in preventing future incidents. Botaş continued to provide environmental and social training to employees. By the end of the third quarter 95% of employees working on the pipeline, 92% of those working at pump station sites and 92% of those at the Ceyhan terminal had undertaken the required environmental induction training. The figures for reinstatement were 95%, 67% and 86%, for oil spill response 95%, 72% and 64% and for archaeological management 95%, 65% and 87%. Community relations training had been undertaken by 100% of employees at the Ceyhan terminal, 76% at pump station sites and 92% at pipeline locations. CONSULTATION AND COMMUNICATION The country-specific Communication Plans described in previous quarterly summaries continued to form the basis of consultation and communication with project stakeholders. In general they involved information distribution about project activities, consultation meetings and monitoring visits. A special effort was made to increase the level of consultation with project affected communities in respect to community safety following the drowning incident in Turkey. These initiatives underline the commitment to conduct proactive, issue-based consultation in addition to routine activities. Azerbaijan: In Azerbaijan contractors discussed the project with affected communities on a regular basis. Topics included construction progress, use of access roads, community safety, recruitment issues, irrigation and damage to property. In total 77 public meetings were held in July, 32 in August and 40 in September. Some 85 registered complaints were received from the project affected community in Azerbaijan in the quarter, mostly relating to irrigation and compensation issues. The majority were resolved quickly. During the quarter BTC met with many non-governmental organisations (NGOs). Discussions covered civic education programmes, best practices used for community investment programmes, the land acquisition and compensation programme and various possible projects such as the establishment of community information centres. Meetings were held with the Azerbaijan Geographic Society about its semi-desert conservation proposal and the Director of the Institute of Archaeology and Ethnography to agree the Archaeological Excavation Plan. BTC representatives met with Chad/ Cameroon NGO representatives to discuss the NGO Monitoring Programme as well as environmental issues. This was the second visit to the project by Chad/Cameroon NGO representatives. The project team also met with the Azerbaijan Cabinet of Ministers to discuss tax issues surrounding donor funding. Meetings were also held with donor organizations including a representative from OSCE (Organisation for Security & Cooperation in Europe) and the director of USAID to discuss energy management issues. Georgia: In Georgia, BTC and SPJV Community Liaison teams continue to work closely together in the field. The expansion of the social field teams has allowed each BTC CLO to act as a dedicated resource to around 15 communities. Additional efforts have been directed towards making affected populations aware of the various avenues available to them for raising issues.

APLR (Association for the Protection of Landowners Rights) has continued to work in project affected communities to understand and report land-related complaints. A total of 642 complaints were received for the quarter in Georgia. The most (254) had to do with orphaned land (i.e. agricultural land which has been cut off from the main plot). Another 44 complaints related to crop inventories and the request for reassessment. Finally, 31 complaints were received about impact to bee populations due to dust from the project. However, when the project contracted an investigation, the majority of the bee related complaints were found to be not valid. During this quarter, BTC continued its weekly coordination meetings with GIOC, Ministry of Environment and the Government’s Technical and Environmental Advisors. BTC has begun implementation of the first project under the “Greater Borjomi Initiative” in collaboration with GTZ. The “Greater Borjomi Initiative” is part of BP’s Regional Development Initiative and aims to contribute towards the socio-economic development of the wider Borjomi region. The first project is focused on funding waste management improvements in Borjomi and Bakuriani towns. Turkey: In Turkey consultation reflected the varying construction phases along the pipeline route. In some places consultations were held about hydrotesting and reinstatement of agricultural land, while at the pump stations consultations covered the transportation of pump driver engines. Levels of community liaison increased in Lot A both in terms of planned and ad hoc meetings. In total, 23 village meetings were held during the quarter. Much time and effort was spent by CLOs in assisting the HIV/AIDS prevention programme. A total of 28 health awareness meetings were held in Lot A in this quarter. In addition, a Children’s Traffic Safety Awareness Program was implemented for school children. Also in Lot A, the CLOs responded to a number of complaints relating to damaged infrastructure and crops by holding a series of impromptu meetings. In Lot B 43 regular, planned community meetings were held, the majority with village muhtars, police, municipal representatives and district directorates to address specific community/municipality concerns. Issues included demolition of temporary structures in the ROW, land damage, use of local roads, payment for use of a quarry and reinstatement of agricultural land. Lot C recorded 89 regular, planned community meetings during the review period. Issue- based meetings were held with communities to discuss an unplanned water disruption, a pipeline route change, hydrotesting, reinstatement of agricultural land, the risks of open trenches and the responsibilities of the trench watchman. Many safety briefings were held and included the distribution of a ‘warning sheet’ at the end of the briefing. The sheet detailed the dangers associated with pipeline construction and stressed the dangers posed to children and how parents might respond. At the Ceyhan marine terminal there were 18 community meetings during the quarter, all held in villages near to the terminal. CLOs undertook additional traffic safety awareness sessions in schools in Kurtpinari and Golovasi. The Designated State Authority (DSA) – the body responsible for land acquisition and land compensation payments in Turkey – continued to resolve land issues with Botaş Community Relations Teams during the quarter, concentrating their work on villages that had the greatest amount of expropriation-related activities and construction impacts. Field visits by the Rural and Urban Development Foundation (RUDF) - an independent Turkish civic organisation that monitors the land acquisition and compensation process as well as construction impacts on communities on behalf of BTC Co. - were limited due to the summer holiday period and revision of the scope of RUDF’s monitoring remit. RUDF community consultations relating to land issues took places in 42 villages.

Ankara University together with the DSA held consultation meetings with common land users to resolve complaints from four villages. University of Ankara, BTC and Botaş representatives held further discussions with the Golovasi fishermen. Forty five out of 48 fishermen have now signed compensation agreements. During the review period a total of 202 new complaints were filed in Turkey. A significant portion (66) related to crop or property damage. Forty-five (45) related to outstanding payments by the contractors to service providers and 38 related to damage to community infrastructure (roads, irrigation, drinking water). The CIP team continued to visit villages to monitor the progress on various projects. Separate meetings were held between national and international experts (contracted by BTC) and CIP Implementing Partners, local authorities and villages to assess the effectiveness of CIP projects and identify areas for improvement. Meetings with academic organisations included one with the London School of Economics and Boğaziçi University in Istanbul who are jointly investigating BTC’s social impact. CIP initiatives included the 4th CIP Quarterly Workshop at the end of September attended by all CIP Partners to discuss progress and lesson’s learned. Regular meetings were held with Turkish government ministries including the Ministry of Energy and Natural Resources, the Ministry of Environment and Forestry and the Ministry of Culture and Tourism to provide updates on the project and discuss any government concerns. Issues raised included changes in quarry laws; cultural heritage late finds and management; the operational Oil Spill Response Plan and the CIP/EIP. Several meetings were held with the Ministry of Health to discuss the HIV/AIDS Awareness and Protection Program. In Ankara, BTC CIP teams met with the General Directorate of Village Affairs to discuss partnership opportunities. Talks were held with UNDP about support for the EIP Small Investments Fund. A grant agreement was signed by UNDP in September. Media activities in the quarter included a media visit to Lot A (Ardahan, Kars, Erzurum) to show environmental impact mitigation measures during construction. Local media representatives attended an event at PT1 in Posof and PT3 in Erzincan to celebrate one million man-hours being worked without the loss of a working day. The EIP team invited the media to report satellite tracking devices being attached to female Green Turtles at Sugozu beach. LAND ACQUISITION AND COMPENSATION The land acquisition and compensation process, land hand-back, and livelihood restoration form key parts of the project’s Resettlement Action Plan (RAP). Pipeline ROW land acquisition and compensation is effectively complete in Azerbaijan. Most transactions went smoothly and owners/users appear very comfortable with the level of compensation. Acquisition and compensation activities in Georgia concentrated on areas where construction was imminent – in particular high mountain villages in Akhaltsikhe and Borjomi, around Borjomi, and near Sakire, Tazdrisi and Akhaltsikhe. Out of a total of 35 high mountain villages intersected by the pipeline corridor, 28 have been compensated and seven are being processed. In Turkey the entire ROW was handed over to construction contractors at the end of June. By the end of the third quarter all public landholders and 90% of private landowners had received compensation. Those that had not are either awaiting court decisions or were customary landowners whose land boundaries were misidentified by local courts during the pre-construction land investigation.

All land acquired temporarily in Turkey will be returned automatically to landowners for their use three years after signature of the land agreement. In the third quarter a first draft of a Land Exit Plan was submitted by Botaş to BTC Co. for review. It includes provisions to ensure that land is returned in its original condition. Progress was made agreeing compensation with fishermen at Ceyhan and 45 out of 48 fishermen had received payment by the end of the quarter. Efforts by CARE and Mercy Corps in Georgia to implement the Vulnerable People Initiative (VPI) continued. Non-cash support to the vulnerable including livelihood packages, chickens and vegetable seed packages was distributed and regular training visits were made to improve awareness and skills in crop rotation techniques and soil preparation for planting. Animals are also being vaccinated as part of this programme. Significant challenges were met in carrying out the VPI and a modified programme has been developed for 2005. INTERNAL AND EXTERNAL MONITORING Internal and external monitoring are key components of the project both to ensure it is in compliance with its commitments and legal obligations, and to identify possible improvements. The distinction between internal and external monitoring is not always clear-cut. For the purposes of this report, internal monitoring is carried out by contractors, BTC Co., Botaş or third parties. It is not normally published. External monitoring is carried out by parties contracted through third parties – governments or lenders and results are normally publically disclosed. Effectively, there are 11 types of monitoring – six internal and five external. Monitoring takes place as often as daily or as infrequently as twice a year depending on prior agreements. As noted in the first quarterly report, a three tiered ranking system is used for rating non-compliances – Level 1 (no immediate threat), Level 11 (requires speedy corrective action), Level 111 (critical situation). Level 111 non-compliances must be notified to the Lender Group. INTERNAL MONITORING Azerbaijan: There were no significant environmental or social incidents in Azerbaijan during the review period. A number of audits and reviews were undertaken in the quarter. Non-compliances were as follows: Level III – none; Level II – nine; Level I – 15. Twelve of the 15 Level I non-compliances and the seven Level II non- compliances (all in July) related to waste management and pollution prevention. Of particular note were findings from an independent review by Oxford Archaeology on the cultural heritage programme in Azerbaijan. The review concluded that through its phased approach to discoveries the project has generated information that “will be a valuable contribution to the understanding of the complex ebb and flow of human settlement and land use in Azerbaijan…(It) will enable a wider perspective to be taken on ethnic and cultural relationships across the southern Caucasus and eastern Anatolia. In this sense the work has international significance.” Georgia: There were no significant environmental incidents in Georgia during the quarter. Non-compliances were as follows: Level III– none; Level II – three; Level III – three. Level II issues involved sediment and erosion, river crossings and due process, and unauthorised use of third party spoil disposal facilities. A review of soil management was undertaken by a scientist from Cranfield University who recommended various mitigation measures which ensure that changes to the ROW stripping and soil storage strategy will not have a negative impact on the reinstatement potential.

Turkey: Reviews undertaken during the quarter covered waste water treatment, waste treatment, procurement, RAPs, and cultural heritage management. Recommendations for technical changes and changes to operational practices were made regarding waste water treatment. Non compliances were as follows: Level III – none; Level II – 20; Level III – 21. Level I non-compliances related to issues such as traffic and topsoil management, community safety and employment. Level II non-compliances involved waste and waste water management, erosion control, forest clearance management, community safety, soil and aggregate management, unapproved use of land, river bank protection and cultural heritage. EXTERNAL MONITORING The summaries below relate to reviews undertaken in the three countries by IEC, SRAP, CDAP and NGOs1. External monitoring reports are placed on the project website - www.caspiandevelopmentandexport.com IEC Four visits have been made (November 2003, February-March 2004, June-July 2004, October 2004). The general conclusions of the June-July visit stated that “significant improvements have been seen in terms of E&S and H&S staffing” but three important issues needed to be addressed – waste management in Azerbaijan and Georgia; reinstatement especially in Turkey; and community safety along the ROW. Non-compliances found on the visit were as follows: Level I – 13 (Azerbaijan 4, Georgia 3, Turkey 6); Level II – 17 (Azerbaijan 5, Georgia 4, Turkey 8); Level III – 3 (Azerbaijan 2, Georgia none, Turkey 3). Level III issues included solid waste and ROW management. Level II issues raised involved solid waste and wastewater management, pollution prevention, ROW management, organisation and resources, ecological management and third party activities. SRAP A panel of experts visited in July-August, 2004. Recommendations from this visit will be discussed in the Q4 report. The Q3 report summary details recommendations made by the previous SRAP visit (February 2004). Recommendations are graded High, Medium or Low by country. A total of 39 High recommendations (Azerbaijan 9, Georgia 20, Turkey 10) and 16 Medium (Azerbaijan 2, Georgia 7, Turkey 7) were made from the February, 2004, visit. High recommendations related mostly to land acquisition and compensation (10), social impacts from construction (10), community engagement (9) and livelihood restoration (5). Medium recommendations centred on land acquisition and compensation, livelihood restoration and the social impact of construction. CDAP Established to provide independent advice and counsel to the BP Group Chief Executive, CDAP has a remit that lasts for three years and usually makes two visits to the region each year. During the third quarter 2004 there were no visits although one took place in October 2004. The panel plans to issue its third report in early 2005 and it is envisaged that their conclusions will be recorded in the next quarterly report (Q1 2005).

1 IEC (Independent Environmental Consultant); SRAP (Social Resettlement Action Plan Experts Panel), CDAP (Caspian Development Advisory Panel); NGO (Non Government Organisation)

Host Government Monitoring In August representatives from the Azerbaijan Ministry of Culture visited BTC archaeological sites. Very positive feedback was received. In Georgia the government’s Environmental Advisor Team of Auditors performed regular compliance audits. In the third quarter specific topics covered included tree felling, rare plant management, river crossings, ecology management, pollution prevention, topsoil stripping, welding, land reinstatement and training. Overall findings of the audits were positive with no major non-compliances identified. In Turkey monitoring by the Ministry of Environment and Forestry continued.

NGO Monitoring Local NGO monitoring of the project – a recommendation of the CDAP panel – has developed further during the third quarter. This initiative covers all three countries and is intended to enhance the capacities of local NGOs, allow them to transfer their skills to monitor other projects and provide the BTC project with objective and constructive reports. In Azerbaijan the Open Society Institute (OSI) coordinates the work of local NGOs. After preparatory work they began collecting data and making site visits in the third quarter under plans drawn up with OSI with a view to producing their initial report in December, 2004. In Georgia Eurasia Foundation - the chosen facilitator - has based its work on the model established by OSI in Azerbaijan. Work on the facilitated monitoring programme was set to begin in the autumn with a view to producing first reports by mid-2005. In Turkey national NGOs have the experience and capacity to take on a monitoring role. However no organisation was found that combined the necessary availability, expertise, credibility and interest to undertake regular monitoring. Instead the project has arranged an extensive stakeholder engagement process that includes local NGOs and involves regular review meetings open to all. HEALTH AND SAFETY In this quarter we must regrettably report the drowning of two children in a water-filled trench in Turkey and a fatality of a project employee in Azerbaijan. These tragic incidents overshadow what otherwise was exceptional performance in health and safety. The incidents have been investigated fully and the findings and key lessons are noted below. Overall, the project’s annual health and safety performance remains six times better on a Day Away from Work Case Frequency (DAFWCF) basis than the industry average. In 2004 to the end of September a total of 46.7 million man hours had been worked on the BTC project with a total of 20 Days Away From Work Cases, giving a DAFWCF rate of 0.09 compared to 0.16 for 2003 – a 43% improvement. The IPLOCA (International Pipeline and Offshore Constructors Association) DAFWCF rate average is 0.55. Various achievements and milestones were recorded during the third quarter. In all three host countries ‘Getting HSE Right’ self-assessments were conducted, driving improvement programmes continued and supervisor safety leadership awareness campaigns were implemented. In Azerbaijan a health and safety leadership commitment workshop was completed with senior contractor managers. Confined space training drills were held in Georgia ahead of a weld inspection programme. In Turkey three work sites celebrated one million manhours without a DAFW case.

The drowning incident referred to above occurred on 9th July 2004. A joint team composed of management representatives from BP, Botaş and Punji Lloyd Lemak investigated the incident. The Investigation failed to uncover exactly how the children came to be in the water, however the main conclusions from the investigation were related to timely dewatering of the trench and control on access. Some of the most critical actions taken as a result of this tragic incident were improvements in community awareness of construction risks, increased security patrols to prevent third party access to the ROW. Improvements in fencing design and construction of excavations, dewatering and minimizing the number of open trenches have also been taken. These actions were taken across all three countries. A second major incident occurred on the pipeline construction at Yevlakh camp in Azerbaijan on August 27. A heavy-duty truck driver employed by CCIC was crushed by the wheels of his assigned vehicle while working on the truck with the cab in a raised position and the engine running. He was fatally injured. The job site was shut down until an investigation could be completed. The incident was investigated by a joint team composed of management representatives from BP and CCIC to identify the root causes and discover the lessons to be learned from this incident. The main findings centred on leadership, use of defective equipment, risk assessment and compliance with procedures. The Lenders were notified. Other incidents in the quarter included a number of serious injuries caused by falls, traffic accidents and machinery falling on workers. A timekeeper had three toes amputated by a side-boom counterweight when he was assisting with maintenance. Nine people received injuries that resulted in restricted work and 33 received medical treatment for injuries sustained. A total of 186 people required first aid treatment as a result of minor injuries. Road traffic accidents totalled 57 in the review period with 41.4 million kilometres driven (48 accidents and 26.7 million kilometres driven April-June, 2004). The use of seatbelts, head restraints and rollover protection combined with an extensive driver- training programme continues to drive down the number of road traffic accidents and their seriousness. The project continues to hold training and safety immersion programmes and regular driving safety audits are undertaken to ensure high vehicle standards. INVESTMENT AND OFFSET PROGRAMMES These projects promote and conserve biodiversity, deliver local sustainable benefits and empower local communities to solve their problems. Details of the majority of individual projects were given in the previous quarterly summaries. This report concentrates on new projects and changes to existing projects in the third quarter. In Azerbaijan the success of the Community Investment Programme has encouraged third parties to invest in additional projects with BTC. These include the Caspian Vision Project, co-sponsored by Unocal Khazar and BTC/SCP, which includes free eye care and surgery for vulnerable people. Another project funded by BTC/SCP, Unocal and Statoil will rehabilitate three schools. In all three countries the Construction Contractors have undertaken many voluntary initiatives to assist local communities. These cover a wide variety of activities including upgrading water systems, digging out blocked canals, restoring buildings, providing school materials, renovating a stadium (Tsalka, Georgia) and loaning equipment to upgrade roads, fields and buildings. Environmental Investment Programmes (EIP) The request for proposal process did not yield any suitable proposals for a cross Caucasus Project to address issues related to biodiversity conservation in the region. BTC is investigating the reasons for this lack of interest.

Azerbaijan: In Azerbaijan there are three EIP projects in the implementation stage. This situation has not changed since the last report. BTC published a pamphlet on behalf of the Ministry of Culture describing the Gobustan Cultural Reserve. Discussions continued on the future of the Reserve. A draft action plan for Tougay Forest Area has been produced which will be implemented in 2005. Proposed actions include tree planting, protection of area from human intervention, monitoring and public awareness. Georgia: In Georgia, there are now four projects in the implementation stage, which is one more than last quarter. Save the Children has been commissioned to implement the Small Grants for NGO Capacity building along the ROW. The overall goal of the project is to develop NGO capacity to engage citizens in environmental awareness and education and in social development. In the other projects, fieldwork was carried out for the Caucasian Black Grouse research project and the Brown Bear Conservation Programme started activities including analysis of satellite imagery to analyse habitat characteristics. The rare species (population enhancement programme) is progressing well. Two themes for funding have been selected for the Borjomi Kharagauli National Park Zone: enhancing environmental education and developing sustainable grazing practices. A consultant was commissioned to aid development of the Forest Eco- compensation programme and another was commissioned to undertake development and early management of the Sustainable Forest pilot project. Turkey: In Turkey there are now seven programmes in the implementation stage. This is one more than the last quarter. The latest project is a small investments fund that will be implemented by the UNDP. The goal of this project is to build capacity in local enterprises in the areas of environmental management and energy development. Other highlights from the implemented projects include the identification of two additional Important Bird Areas, taking the total number of IBAs to 12. Protocols were signed with the Turkish government allowing the Caucasian Black Grouse project to start eco-tourism activities on-site in Ayder and providing access to satellite imagery and digital elevation maps. A total of 31 Black Grouse were recorded during visits in the quarter. Three seal sightings were reported under the Mediterranean Monk Seal project in the Gulf of Iskenderun. Two Important Plant Areas (IPAs) were confirmed and 33 potential IPAs identified. Satellite tracking devices were attached to four green turtles. Community Investment Programmes (CIP) The key components of the CIP in all three countries, described in earlier quarterly reports, remained unchanged in the third quarter. All CIP projects are in the implementation stage and there have been no additional CIP projects initiated this quarter. Highlights are outlined in terms of each country below. Azerbaijan: Community mobilization and capacity building in Azerbaijan includes 48 communities in the western half of the pipeline and 34 in the eastern half. In the western half all 48 communities now have fully functional Community Action Groups (Ijma Groups). The full cycle of capacity training has been completed in 24 of these. Infrastructure projects have been completed in 14 communities and are ongoing in 16. More than 1,700 farmers are being helped by 27 agricultural trainers. Along the eastern half of the pipeline 12 micro-projects were completed during the quarter and an additional 16 are being implemented. A considerable amount of training was carried out in the target communities – for municipal councilors, small entrepreneurs, farmers (a majority of whom were women) - with positive results. Ten civic initiatives were organised such as cleaning up and equipping sports fields.

The project to promote community health care advanced. Training in pre-natal care was provided for 250 women, 16 health education libraries were established and 21 teachers selected for training. The micro-finance project also made rapid progress and the original target of 2,279 loans in Azerbaijan by end-September was exceeded by 315% (7,172 loans made). Repayment rates were maintained at 100% in the quarter. Georgia: In Georgia some 82 infrastructure rehabilitation projects had been completed by the end of the third quarter, including 12 during the quarter. Several communities completed their third project and have successfully contributed 40% of the costs. In total, 12km of potable water systems have been rehabilitated, 7km of irrigation systems, 20km of roads, 9km of gas pipelines. Twelve schools, five libraries and four social clubs have been rebuilt. In many cases the Georgian CIP has restored social infrastructure that has been lacking for years. Agricultural support in the quarter was focused on the monitoring of crop and livestock demonstration farms and provision of individual and group training. More than 550 monitoring visits to 85 cattle breeding and 465 crop production demonstration farms were made. About 1,000 farmers attended training sessions. An initial estimate of potato yields on demonstration farms indicated that production almost doubled compared to previous years’ yields. During the quarter total loans under the micro-credit programme exceeded $1.5 million. About 1,490 groups comprising 6,634 individuals have benefited, mostly in larger population centres where bankable businesses exist. Energy efficiency projects in rural communities have proved unable to address the key issue of provision of electricity and gas. Moves to set up Social Services Networks for the elderly and vulnerable, and to train doctors and nurses, involved organising and holding two problem-solving workshops under the auspices of the International Centre on Conflicts and Negotiations. Distribution of over 18,000 school kits for villages in eastern Georgia was completed. Capacity building to strengthen self-help and manage grants continued with more than 50 training sessions for 230 people undertaken. A project to rehabilitate schools began in the summer with agreement on specific measures and selection of some contractors. Turkey: In Turkey there are now five implementing partners who each manage a separate area along the pipeline, an increase of one since the second quarter. To meet the needs of all communities impacted by the BTC project, 51 additional villages have been included in the CIP scope including some that lie outside the ROW corridor but have land intersected by the pipeline. Total cost for these extensions will be about $1 million up to the end of 2005. In Ardahan province 37 villages are included in the CIP. A first newsletter was published, agreements reached with district governors, animal vaccination programmes continued, a cooperative set up in Damal and training provided in aspects of fruit culture and hygienic milking. In Kars province (26 villages) field staff continued vaccination campaigns and treatment of sick livestock. Five new project councils (including women’s councils) were set up bringing the total to 13. Similar activities took place in Erzurum province (63 villages) where 238 new students were enrolled in secondary school programmes. In Erzincan and Gumushane provinces (46 villages) vaccination programmes, bee- keeping initiatives, a seed exchange programme and numerous training activities were undertaken. Efforts to widen women’s involvement in society included the participation of 105 women in seminars on entrepreneurship, marketing and finance.