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Caucasus: Campaigners Criticize International Lenders For Funding Transcaucasian Pipeline Project

The European Bank for Reconstruction and Development this week approved loans worth $250 million to help Western companies build an oil-export pipeline from the Caspian Sea. The World Bank made a similar pledge last week. Rights campaigners are concerned by both decisions, which they say come at a time of political turmoil in the region.

Prague, 14 November 2003 (RFE/RL) -- Despite Azerbaijan's recent domestic turmoil and Georgia's ongoing political crisis, leaders in both Southern Caucasus countries have received significant boosts from international lending agencies.

On 11 November, the London-based European Bank for Reconstruction and Development (EBRD) approved a $125 million loan to help Western companies build a U.S.-sponsored pipeline designed to ship Azerbaijani crude oil to Turkey's Mediterranean port of Ceyhan through the Georgian capital, Tbilisi.

The EBRD said in a statement that a further $125 million would be raised through syndication to commercial banks. In addition, the bank said it had approved financing of up to $60 million, including half for its own account, for the development of Azeri, Ciraq, and Gunesli, three major hydrocarbons deposits located in Azerbaijan's Caspian Sea sector.

These commitments come on top of similar pledges made on 4 November by the Washington-based International Finance Corporation (IFC), the private arm of the World Bank Group.

"The supporters of the Baku-Tbilisi-Ceyhan (BTC) pipeline have won a decisive victory," Azerbaijan's Russian-language daily "Zerkalo" wrote on 12 November, commenting on both decisions.

Not everyone shares this enthusiasm. CEE Bankwatch Network is an international nongovernmental group that monitors the activities of world financial institutions and their social and environmental impact in Europe and the former Soviet Union. In a communique released this week, the group criticizes the EBRD and the IFC for pledging funds to the BTC pipeline, despite widespread concerns raised by the project.

Although the go-ahead given by the IFC and the EBRD came as no surprise to campaigners, Prague-based CEE Bankwatch oil and climate coordinator Petr Hlobil told RFE/RL he is concerned by the timing of the decision. "I think both institutions made a substantial mistake by approving these loans," he said. "There is quite of lot of evidence that the project's documents actually violate the policies of [both] banks in terms of public consultation, environmental assessment, and -- specifically in case of the EBRD -- issues related to democracy development. The EBRD is an international development bank that has the mandate [to support] the development of multiparty democracies. And, clearly, the situation in Azerbaijan after the [recent] presidential election got substantially worse. We are very worried that [Azerbaijani President] Ilham Aliyev will see [the bank's decision] as an endorsement of his policy."

Turkey began laying its section of the BTC pipeline in September of last year. Azerbaijan and Georgia soon followed, despite objections raised by rights groups over the project's social and environmental impact.

Construction of the 1,760-kilometer conduit is due to be completed by 2005. A natural-gas pipeline stretching from Baku to Turkey's eastern city of Erzurum through Tbilisi is expected to double BTC by 2006.

Most of the Western criticism directed at the project comes from Britain, which is home to BP, the oil major that operates BTC on behalf of a 11-member consortium made up of U.S., Azerbaijani, Japanese, and European companies.

Nick Rau is a climate campaigner with the London-based Friends of the Earth nongovernmental organization. Echoing Hlobil's comments, Rau criticizes the EBRD and the IFC for ignoring international campaigners' concerns and violating their own safeguard policies.

"There are many safeguard policies that the EBRD and the IFC have. We have studied the environmental and social assessment [of the project], and we've found that [it is] in violation of, in fact, 173 policies. So we were obviously very shocked by that. Policies exist to be complied with. Now, what we were asking the IFC and the EBRD was at the very least to delay funding of the pipeline until these violations could be properly addressed. [But] that did not happen, and that is something we were very disappointed about," Rau said.

The EBRD statement says both the BTC and the Azeri-Ciraq-Gunesli projects "set high standards of openness, transparency and anti-corruption measures" and meet all environmental safety requirements. It also says money allocated to local governments and oil revenues they will eventually get from the projects will be scrutinized by international auditors and made available to the public.

Environmentalists are unconvinced. Greg Muttitt is a researcher at Platform, a London-based NGO that groups environmentalists, social scientists, and artists campaigning for social and environmental justice. He told RFE/RL that while not being opposed to the pipeline as such, his and other groups have had a number of concerns over how its construction is being handled.

Regarding the recent announcement made by the EBRD and the IFC, Muttitt said: "It is well-known and has been well-known since this project was first conceived that [it] is about politics, is about U.S. foreign policy within the region, is about getting the West supplies of oil that are outside the Middle East, and is about undermining Russia as a regional player. Those were always the motivations behind the project. And what has been made clear with these two recent decisions is that those motivations overwrite concern about developing democracy in the region."

Azerbaijan's then-Prime Minister Ilham Aliyev on 15 October succeeded his ailing father, Heidar, at the head of the oil-rich state in an election that was marred by street violence and a crackdown on political dissent.

Neighboring Georgia has been locked into political standoff for nearly two weeks after radical opposition parties protested the outcome of a disputed legislative poll.

International organizations and Western countries have blamed authorities in both countries over voting irregularities and violations of election laws, but have stopped short of stronger criticism.

Western governments and oil companies see stability in the Southern Caucasus region as a priority. The U.S. has expressed concern at recent political developments in Georgia, urging President Eduard Shevardnadze and opposition leaders to quickly settle their dispute.

A first deputy chairman of Azerbaijan's National Oil Company, Aliyev has been involved with negotiations over the BTC project and, as such, has had a long working relationship with Western oil executives based in Baku.

The pipeline -- designed to bring Georgia large revenues in transit fees and firmly root Russia's small southern neighbor into Western security structures while reducing its energy dependence on Moscow -- has long been Shevardnadze's pet economic project.

The EBRD estimates Azerbaijan will receive between $31 billion and $42 billion in revenues from both the BTC and Azeri-Ciraq-Guneshli projects. As for Georgia, the bank says it will receive transit fees worth more than $500 million over 20 years.

BTC consortium members say development and transport of Caspian oil resources will profit the region's impoverished populations, allowing local governments to take proper care of the hundreds of thousands of refugees and internally displaced persons driven from their homes by the armed conflicts that erupted in the area in the early 1990s.

Western and local governments, in turn, claim the BTC pipeline will significantly boost economic development in the Southern Caucasus region and help enhance security and stability in that traditionally volatile area.

Campaigners question this theory, however. "Oil pipelines do not tend to make areas safer," Rau argued. "They tend to make areas more dangerous."

Citing international surveys that regularly place Georgia and Azerbaijan among countries perceived as most corrupt, critics of the BTC project say they doubt local populations will actually profit from the region's oil boom.

Others, like Rau of Friends of the Earth, question both the environmental safety and economic viability of BTC. "If you look at Georgia, for example, the pipeline will pass through the Borzhomi [national park]. That is an area that is hugely important for the Georgian economy because it is the source of the [famous] Borzhomi mineral water. That is one of Georgia's biggest export earners, and an oil pipeline passing through that area seriously threatens a sustainable and very important source of income for the country," Rau said. "Spilling the area would be very disastrous. Not just a spill, in fact. The mere fact that the pipeline passes through the area is putting investors off. Potential large investors in the region have pulled out because of the reputational risk they feel simply because a pipeline passes through the area."

Despite denials opposed by consortium members, campaigners have complained of irregularities in many other aspects of the project, from compensation paid to residents whose lands are used to construct the pipeline to lack of public information. They say they have fewer complaints about Georgia, where civic society is more developed than in Azerbaijan. Yet, they argue environmental and economic risks are greater in Georgia.

But Muttitt of Platform believes that beyond these differences, both Southern Caucasus nations have something in common. "What characterizes them both, I think, is that commercial imperatives have taken precedence over all other considerations, and the need to get the pipeline built cheaply and quickly has come first," he said.

CEE Bankwatch on 11 November said the EBRD decision would not affect its determination to continue monitoring the BTC project.