International Lenders Assume Burden of Proof on Pipeline Promise

The Baku-Tbilisi-Ceyhan pipeline project gained a boost on November 11 when the European Bank for Reconstruction and Development approved $250 million in financing for pipeline development. Seven days earlier, the World Bank made a similar commitment through its International Finance Corporation. These packages will deliver up to $500 million for the $3.6 billion, 1760-kilometer pipeline from Azerbaijan's capital through Georgia to Turkey's Mediterranean coast.

Lenders say they made the loans in order to foster job growth, fair business practices and environmental responsibility in the crucial oil industry. Critics of the loans say that partners in the pipeline project got too much money with too little scrutiny.

The International Finance Corporation said it hoped to make its commitment a down payment on a program to guarantee local jobs, corporate accountability, and environmental responsibility in the critical oil and gas industries. By giving capital to BTC Corporation, a public-private consortium whose lead investor is energy conglomerate BP, the World Bank stressed its hopes for related economic development. It promised to implement a program to boost "local consultancy capacity [and] access to capital for small and medium enterprises." International Finance Corporation staff would work to bolster "biodiversity, energy efficiency, and corporate governance."

Environmentalist groups counter that the public consultation process BTC Corp. underwent was high-handed and incomplete. The most vocal of these groups challenged the premise that the pipeline would, on balance, benefit people in the countries it passes.

"We are quite unhappy with the IFC decision," said Nick Rau, energy campaigner for the British organization Friends of Earth www.foe.org.uk . Rau, whose group has criticized public support for the pipeline, called the decision "entirely political" and dubbed the international lenders "quite dismissive of nongovernmental organizations' concerns."

Activists had similar words for the November 11 announcement from the European Bank for Reconstruction and Development (EBRD). Though the lenders cite unprecedented public meetings and environmental impact assessments, Rau and other advocates say these failed to address key questions.

Some activists say the review process was mismanaged. Greig Aitken, a spokesman for an environmentalist consortium called CEE Bankwatch, emailed reporters on November 11 to condemn the loan commitment. The email asserted that local people have heard no news about the schedule of pipeline construction and that project representatives have shown citizens documents in foreign languages. It also charges project representatives with bribing landowners and says that in recent days, in Azerbaijan's Tovus region, "One villager narrowly avoided a beating from the Local Authorities Office because he talked to the monitoring group."

According to Rau, claims like this show substandard oversight. "If this project happened in Europe, a strategic environmental impact assessment would have taken place," he told EurasiaNet, critiquing the environmental report the consortium published. In his view, a "strategic" impact statement would have addressed the pipeline's impact on oil exploration and export in Kazakhstan. [For background, see the Eurasia Insight archive]. He also echoed others' concerns that the pipeline's passage through Georgia's Borjomi region would harm an ecological preserve and damage a mineral water company. [For background see the EurasiaNet Insight archive].

Other advocates fault the World Bank and EBRD for providing capital to Azerbaijan and Georgia at all. Manana Kochladze, who runs a Georgian environmentalist group called Green Alternative, pointed to recent elections in Azerbaijan and Georgia as proof of the borrowers' unworthiness. In Azerbaijan, police cracked down on protestors after Ilham Aliyev ascended to the presidency his father has held for years; in Georgia, President Eduard Shevardnadze has endured calls to step down after parliamentary elections widely seen as fraudulent. "The post-electoral situation in Georgia over the last few days shows just who the EBRD are getting into bed with," said Kochladze. "I'm far from confident that the average Georgian will benefit from [international lenders'] involvement in this pipeline."

Rashad-Rudolf Kaldany, director of the World Bank Group's Oil, Gas, Mining and Chemicals Department, argues that international lenders are holding the project to higher standards than other entities might. He asserted in a statement that the recent public comment period "is a first in a project of this nature" and staked the World Bank's credibility to Azerbaijan's promise of good stewardship. Azerbaijan has promised to hold all its oil revenues in a state oil fund , currently worth some $787 million, and to allow auditors from the global accounting firm Ernst & Young to vet the fund. [For background see the Eurasia Insight archive].

Some critics have expressed doubt that an overwhelming emphasis on oil and gas can foster long-term economic stability. Anders Lustgarten, who leads an anti-pipeline effort called the Baku-Ceyhan Campaign, has asserted that the project's terms can tolerate unfair treatment of Kurds and other refugees in Turkey. He told EurasiaNet that he views the project as a "marginal investment" for BP and the EBRD decision, despite its promise of high standards, as "political muscle."

Meanwhile, a source close to the financial institutions promised that lenders would act in good faith. "We are out there to make sure [that good environmental, procurement and governance programs] happen. We are also in active dialogue with the NGOs, many of which have raised legitimate concerns. We are not there to walk away. Even after the board decision, we will continue to actively monitor all the developments."

Oil remains the focus of economic hope around the Caspian. The lenders have also committed roughly $120 million for oil exploration off Azerbaijan. While activists give a frosty assessment of international lenders' promises, questions of how oil can fuel regional economies are growing less theoretical as the pipeline proceeds.