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World Bank backs Caspian pipeline
By John Berthelsen
Over
the bitter objections of international non-governmental
organizations (NGOs), the World Bank's private funding
arm has okayed millions dollars of investment in a
massive, controversial 
US$3.6 billion oilfield and
pipeline development stretching across much of Central
Asia.
The investment by the International
Finance Corporation (IFC) provides the impetus for a
1,760 kilometer pipeline, the world’s longest, snaking
from Baku in Azerbaijan through Georgia to a new
terminal at Ceyhan on the Mediterranean coast of Turkey.
It also includes funding for the Aeri-Chirag-Deepwater
Gunashli Phase 1 oilfield.
The bank's imprimatur
means the two projects will almost certainly go ahead,
according to spokeswoman Corrie Shanahan in an interview
with Asia Times Online. The pipeline, known as the
Baku-Tbilisi-Ceyhan project (BTC), has the potential to
deliver a million barrels of crude a day to the Ceyhan
terminal over the next 20 years, then to be shipped to
global users via supertanker.
The IFC expects to
loan $30 million for the oilfield project and to
syndicate loans for another $30 million, according to
Shanahan. It is to loan $125 million from its own
account on the pipeline and syndicate commercial loans
for another $125 million.
Although the IFC's
loans are modest compared to the overall funding
required, the presence of the World Bank, which uses
public money from its member states, often has a
catalytic effect, encouraging other multilateral and
commercial lenders to invest in project.
The
consortium building the pipeline, led by the British oil
giant BP and including Italy’s Eni, Statoil of Norway,
the US-based Unocal and France’s Total, is seeking
around 70 percent of the total cost in loans. The
European Bank of Reconstruction and Development and the
German development bank, KFW Bank, are also prospective
lenders.
"The bulk of the remaining funding
comes from a number of export credit agencies both from
the US and international, such as OPEC [Organization of
Petroleum Exporting Countries], the Import Export Bank
of the United States, and UK, Japanese and French export
credit agencies," Shanahan said. "Now that our funding
has been approved, it is quite likely that the funding
from the other investors will go ahead as well."
Lined up against the project are NGOs including
The Corner House, the Kurdish Human Rights Project,
Friends of the Earth, Bank Watch and the Baku-Ceyhan
Campaign, also of which allege a wide variety of
environmental, social and economic shortcomings.
The story of the BTC project, as it is known, is
very much driven by US geopolitical and economic
considerations. The story began as long ago as 1991,
when the collapsing Soviet Union awakened oil companies
and international investors to the enormous potential
for petroleum exploitation of the Caspian Sea region and
kicked off a ferocious struggle for exploration and
development rights between multinational oil companies.
During the Soviet era, Caspian petroleum exports
were routed through Russia. But with the breakup of the
Soviet Union, the newly independent state governments of
Azerbaijan, Kazakhstan, Turkmenistan and Georgia and
others in the destitute Central Asia area began to
realize they had a gusher on their hands. Azerbaijan,
for instance, seems to be swimming in oil.
According to the IFC, the Baku-Tbilisi-Ceyhan
project should generate some $29 billion over the next
20 years for Azerbaijan from crude sales. Georgia should
get about $500 million in transit fees from the
pipeline, while revenue to Turkey will be about $1.5
billion from transit fees and for the use of the
terminal at Ceyhan as well as transit fees and upstream
investments.
Some 10,000 jobs are supposed to be
created during construction and another 850 during the
operation of the pipeline, a huge boost to an absolutely
impoverished area. Kazakhstan, for instance, is
described by the World Bank as a "lower middle income
country" with Gross National Income (GNI) per capita of
$1,510, where "both physical and human capital have
eroded steadily over the last decade". Georgia’s annual
GNI is only $730, Azerbaijan’s only $710.
Georgia and Azerbaijan are considered to be rife
with corruption. The dying Haider Aliyev and the looming
succession of his son, Ilam, to replace him as
Azerbaijan's ruler "marks a triumph of nepotism on a
scale other postcommunist leaders can only dream about,"
according to Nina Khrushcheva, a senior fellow at the
New School University, writing in the Taipei Times.
Georgia under President Eduard Shevardnadze has
been described as "sucked dry by corruption and state
criminality" despite the president's close ties with
western governments, which helped to install him in
power and which have played a vital role in keeping him
there through massive aid from multilateral
organizations and governments.
In addition to
raising serious questions of the potential for corrupt
government officials to skim off vast amounts of the oil
profits, where the pipeline would go began to play as
much of a role as the oil itself, politically as well as
economically, given the region's chaotic political
balance. The US agitated fiercely against export through
Iran, going so far as to enact an Iran-Libya Sanctions
Act in 1995, seeking to block sales of sophisticated
energy hardware and technology for oil exploration and
development, and earning considerable irritation from
European governments for American high-handedness.
Similar strategic considerations led the US to
fight to rout the oil and gas pipelines via Georgia to
in effect create a "geopolitical belt around Russia", a
concept drawn up by Zbigniew Brzezinski, former US
president Carter’s national security advisor, in the
early 1990s for the Clinton Administration, according to
Davit Berdzenishvili, executive secretary of the
Republican Party of Georgia, in an interview in 1998
with Radio Free Europe.
Ultimately, according to
Berdzenishvili, the US envisaged the creation of a
"grandiose communications highway" with oil and gas
pipelines along the floor of the Caspian Sea by which
Central Asian and Caspian oil and gas were to be
transported to world markets. As many as 13 major
pipeline projects have been considered in lacing the
entire region with petroleum infrastructure. The US
Department of Energy lists 26 potential infrastructure
projects in the region.
After first considering
an alternate route from Baku to the Georgian port of
Supsa on the Black Sea, the US settled on the
Baku-Ceyhan route to the Mediterranean as a means to tie
together political and economic cooperation between the
western-oriented states of the region - Turkey, Georgia
and Azerbaijan and to balance military-political
cooperation between Russia, Armenia and Iran.
BP, the operator of the consortium that is
expected to build the pipeline, was initially opposed to
the route, questioning whether the amount of oil was
sufficient to make the pipeline pay. Ultimately,
however, the company revised downwards the amount of
reserves needed to make the pipeline economical, to 4
billion from 4.5 billion barrels.
Construction
has already begun on the Turkish portion of the
pipelines.
The UK-based Bretton Woods Project,
an umbrella of UK-based NGOs set up to monitor the World
Bank and International Monetary Fund projects, charged,
however, that "NGOs from three countries, plus
international supporters, have raised serious concerns"
including corruption, debt and exemptions for foreign
oil companies obtaining exemptions from national laws in
the region." The BWP has demanded that relevant UK
ministers seek to block the project approval, arguing
that "such practices by transnational companies may
seriously jeopardize the countries' progress towards
democracy."
Another NGO, PLATFORM, charged that
"the BTC project has been bedeviled by accusations that
pledges on human rights and regional development have
not been kept," that it could lead to environmental
disasters including adding to climate change and the
political destabilization of the region. Most recently,
PLATFORM said, BP's own consultant found that the
project broke resettlement guidelines and local laws and
violated international standards on no fewer than 173
counts.
But, says Corrie Shanahan, "We have
worked diligently to make sure that this project reaches
the highest environmental, social and governance
standards. It is a project that reaches and in many
cases actually exceeds our own standards and is in fact
a breakthrough in terms of projects of this nature."
The NGOs however, say the World Bank is
overhauling its social and environmental policies,
diluting key provisions to protect the environment and
economies and is making it harder for countries and
organizations to hold the bank responsible for the
impact of its operations.
An earlier report by
the Environmental Defense Fund, Friends of the Earth and
the International Rivers Network charges that the bank
"is still unable to adequately identify, contain and
mitigate the risks of the projects it finances."
The Breton Woods group points to the Nam Theun 2
Dam in Thailand and the Bujagali Dam in Uganda, two of
the largest of the bank’s dam projects, from which
investors eventually fled following delays, difficult
price negotiations and NGO campaigns over environmental
and social impact.
The NGOs also raised concerns
that the vast amounts of money flowing into the
impoverished Central Asian states would spur corruption.
But, Shanahan responded:
"The amount of
disclosure on these projects has been unprecedented. For
example, host government agreements and production
sharing agreements and the intergovernmental agreement
have all been made public, which is first in a project
of this kind. In addition, the BTC company is publishing
what it pays to Azerbaijan, and Azerbaijan is publishing
what it receives. That is unprecedented."
Revenues from the Azerbaijani gas and oil
projects are to be placed in a state oil fund that is to
be audited by Ernst and Young and disclosed to the
public, she continued. The oil fund now has $787 million
in it from previous projects.
Rashad Kaldany, a
director of the oil, gas, mining and chemicals
department of the World Bank, said in a press release
that nine layers of monitoring - four internal and five
external - have been put in place to protect financial,
technical, legal and environmental concerns.
"The IFC believes this level of monitoring and
transparency provides the correct balance of internal
monitoring verified by external, independent monitoring
and public disclosure," Kaldany said. These monitoring
layers are key to mobilizing the significant private and
institutional investments in three countries to get the
project underway, he added.
Shanahan added that
the IFC had worked closely with Amnesty International on
the project, and that local NGOs have largely agreed to
the provisions approved by the World Bank and the IFC.
The NGOs list Amnesty International as an ally.
"The local [organizations] are more pragmatic,"
she said. "They have their own issues, but they are much
more making sure that their constituents get the best
possible deal in terms of economic benefits and
environmental management, that the governments will
spend the money wisely. But they are unanimously in
terms of this project supportive while raising issues
relevant to investigation, job compensation, government
oil revenues and so on."
According to an IFC
press release, the World Bank organization has programs
in all three affected countries to help local companies
and entrepreneurs benefit. The pipeline, according to
the press release, crosses 17,700 land parcels in the
three countries without displacing any households.
"The program includes technical assistance to
service and supply companies, leasing activities, the
development of local consultancy capacity in terms of
business services, and the development of new financial
products aimed at improving access to capital for small
and medium enterprises."
(Copyright 2003 Asia
Times Online Co, Ltd. All rights reserved. Please
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