"This is not just another pipeline; it is strategic framework that advanced America's national security interests. It is a strategic vision for the future of the Caspian region".
Bill Richardson, Former US Energy Secretary


 BTC Pipeline - Overshadowed Development ?!

by Manana Kochladze, photos by Nino Gujaraidze

The Caspian Sea's oil reserves are considered to be at least as large as those in the North Sea, which currently supply about 8% of the world's oil. The Baku-Tbilisi-Ceyhan main export oil pipeline, which, along with the Baku-Tbilisi-Erzrum pipeline, is intended to connect the Caspian Sea coast to the Turkish Mediterranean in order to provide oil and gas for European markets, represents a new concept of energy corridor development. The project is led by Azerbaijan International Oil Company (AIOC), which is led by British Petroleum Amoco (BP).

The 1,770 km long Baku-Tbilisi-Ceyhan (BTC) pipeline would, starting in 2005, transport up to one million barrels per day (bpd) - 50 million tons per annum - of crude oil from an expanded Sangachal terminal near Baku in Azerbaijan, through Georgia to a new marine terminal at Ceyhan in Turkey on the Mediterranean coast.

Although commercial oil production began only in the second half of the 19th century, for centuries oil was gathered for various purposes by people who lived in parts of the world where it seeped to the surface. Oil has been known in the Caspian region since ancient times. The first mention of Caspian oil is in the history of the Persian wars of Alexander the Great. In 331 BC, during the siege of Persia, Alexander the Great's tents were lit by clay containers filled with oil from the Caspian seaside.
The first reliable information about oil extraction on the Absheron peninsula of Azerbaijan dates to the 7th and 8th centuries. Oil and gas seeps were recorded in Baku on the Western shores of the Caspian Sea by an Arab traveler and historian as early as the tenth century. Marco Polo later wrote how people in Baku used oil for medicinal purposes and to administer blessings. By the fourteenth century, oil gathered in Baku was already being exported to other countries of the Middle East.
Large-scale oil production in Baku began in 1872, preceding even the oil activities of Colonel Drake in Pittsburgh, Pennsylvania. By the end of the 19th century Baku was known as the "Black Gold Capital". Baku became the global center for the international oil industry and attractive for foreign companies.
The growth of Baku at the end of 19th and 20th centuries as a center for extracting and refining oil promoted an influx of the capital of some of the biggest companies of the world, including the Nobel brothers, the Shell Company, the Rothschild's, etc.
The Nobel brothers and the Rothschild family played a major role in the development of the oil industry in Baku, which was at that time part of the Russian Empire. The Nobel brothers introduced innovations, such as oil pipelines and steam-powered tankers, to a primitive industry, transforming Baku for a glorious and brief period into one of the world's leading oil sources.
An 883 km long pipeline from Baku to Batumi on the Black Sea was constructed in 1897-1907, and was the longest pipeline in the world at that time. Its diameter is 200 mm and it was equipped with 16 pump stations.
In 1900, Baku produced more than half of the world's oil output, due to its significance as the largest trade and transport junction where the most important marine and railroad routes of the Russian Empire, Iran and other Eastern countries joined. The route connecting Baku with Tbilisi and the Black Sea coast of Georgia enabled the export of oil products to the world markets.
Oil production suffered as a result of the Russian revolution in 1917, and the situation worsened with the Communists' nationalization of the oil fields in 1920. The Nobels sold a significant part of their Russian holdings to Standard Oil of New Jersey, which was later to become Exxon. Standard Oil protested the decision to nationalize the oil fields and refused to cooperate with the new Soviet government. But other companies, including Vacuum and Standard Oil of New York, which was later to become Mobil, invested in Russia. The continued inflow of Western funds helped Russian oil production to recover, and by 1923 oil exports had climbed back to their pre-revolutionary levels.
A new era in the oil industry of Azerbaijan started after the collapse of the Soviet Union. Azerbaijan and its resources are again at the center of attention of the world's political and financial groups.

While the political significance of the project is recognized by a number of Western governments, the project sponsors clearly recognize that the BTC option makes sense only "if 'free money' is offered by governments to build the line".1 The IFC, EBRD, EIB, US Ex-Im, OPEC, TDA and JEXIM are already committed to supporting the project and will cover up to 70% of project-associated costs.

What would the impact of the BTC pipeline and associated oil development be on the region? Does the project help overcome poverty, pollution and corruption, and bring good governance and a brighter future to the region, or will it widen the existing gap between rich and poor, increase environmental pollution, and worsen the human rights situation? These are major questions that should be addressed.

International financial institutions and Western governments have spoken of "institution-building" in the Caspian countries, a process that is expected to take place gradually alongside oil development. But there has been little question as to which comes first, both in time and importance.

Since the breakup of the Soviet Union, the South Caucasus and Caspian countries have been waiting for an oil boom to overcome their economic crises and to eradicate the poverty affecting the lives of millions of people living in those countries. Azerbaijan and Georgia once enjoyed strong social indicators and a remarkably high quality of life in comparison with other Soviet republics. But today, as a result of economic crises, political turmoil, and ethnic conflict, about 60-70 percent of their populations live below the poverty level. This is joined with the disruption of the countries' health and educational systems, as well as malnutrition, extremely poor water supply and sanitation systems, and a severe energy crisis.

Since 1994, official governmental promotion and international financial institutions (including the World Bank) have worked intensively to ensure private investments and to provide political risk mitigation for the oil sector in the South Caucasus through institutional, policy and legal reforms. According to the IFIs,2 oil development will boost the Azerbaijani and Georgian economies.

Such activities convince the region's poor that the BTC and Baku-Tbilisi-Erzrum gas (AGT) pipelines will bring economic prosperity and stronger democracy to the region. It should not be surprising that people living along the pipeline corridors both in Azerbaijan and in Georgia have high expectations regarding increased employment opportunities and access to energy from the oil and gas pipelines.

The purpose of the pipeline, however, is to export oil and natural gas; communities along the route do not have and will not have any gas supply. And of course there is no contractual commitment from the companies to secure access to an energy supply that could bring new employment opportunities and infrastructure development to those communities.

Only today, after six years of promoting the project and after concluding all main negotiations with governments, is BP starting to talk about the local public's too-high expectations regarding energy, employment and the overall benefits of the BTC pipeline, and the need to provide the public with exact information.

But communities along the route, especially in Georgia, continue to have high expectations regarding the project's benefits. Contrary to what is stated in the BTC ESIA documents,3 companies have not addressed local communities' unrealistic expectations by providing villagers with more detailed information. As a result, potential disappointment could spread within affected communities once they realize that the AGT project will not bring them any gas supply, contrary to the company’s provision contained in the ESIA documents.4

A number of concerns raised among communities should be addressed as soon as possible, including the above-mentioned expectations and health and safety issues. The social assessment done by the company, which did not clearly define how much support communities would receive, "just irritated people... when they asked questions about what people want and need, people got hopeful that lots of things would be done for them. If this does not happen there will be catastrophe".5 At the same time, the experience with the Baku-Supsa pipeline and other mega-projects shows that they do not bring economic benefits and improved living conditions to local communities. Such cases have already created wide disillusionment concerning the benefits local communities will reap from the AGT project, in particular in employment opportunities and infrastructure development. As one local official said: "What will we get after the pipeline project? After the opening of the border crossing near our town we got increased heavy truck traffic, which has ruined half of the houses. Where is the guarantee that this story will not be repeated or other new disasters will not take a place?"6

The people who have experience with the Baku-Supsa oil pipeline construction now know clearly that the oil sector provides only a limited amount of employment and income opportunities, especially for the poor. While in theory the main income from oil projects should flow through state budgets to improve the quality of life of ordinary citizens, the high level of corruption in the region,7 non-transparency of budgetary systems, and arrears in the social protection field leave little hope for people seeing any improvements. "The vast majority of the region's people are still struggling with privation, inadequate services and a ruined environment. So far, the oil boom has not improved their lives. The concern is that more development may only make matters worse".8

Around the world, when politics and money prevail, the environment is the last issue considered. The legacy of oil exploitation and transportation during the Soviet era has already caused significant damage to the South Caucasus' valuable and sensitive environment, and directly impacted the lives of millions living in the region. The residue of past damage still remains.

While the project sponsor has tried to outline BTC's environmental impacts, these technically apply only to construction and maintenance of pipelines. It must be remembered that the BTC pipeline is just one part of wider offshore oil and gas field development in the region, which includes associated upstream and downstream terminals. While BP partially acknowledges the project's international scope when discussing "oil projects in Azerbaijan on ACG Phase 1 and the associated Baku-Tbilisi-Ceyhan (BTC) pipeline that will be used to export the oil,"9 the company tries to present only national EIAs, and these on a country-by-country basis, in order to reduce concerns regarding the overall cumulative environmental impacts of enhanced oil drilling in the Caspian's fragile environment and negative impacts on the fragile biodiversity of the South Caucasus. The enormous potential for greenhouse gas emissions and its impact on climate change are completely ignored.

The AGT pipelines cross six main waterways and several groundwater basins, as well as several environmentally sensitive areas - areas that are protected nature areas of various categories, including the State Gobustani Reserve in Azerbaijan,10 the Ktsia Tabaskuri managed reserve,11 Borjomi-Karagauli National Park's multiple support zone and the Borjomi aquifer in Georgia. All of this is not only against some IFIs' policies,12 but against BP’s environmental strategy as well.

The AGT pipelines also futher endanger a number of endangered plant and animal species protected by the national laws of the south caucasus countries, and call for cutting through several primary forests in the surrounding Georgian mountains.

The project sponsor and the donors funding the pipeline construction should consider all the social, developmental, human rights, environmental and security impacts of regional oil and gas development in general, and of the BTC pipeline in particular. The pipeline should provide demonstrable, guaranteed and considerable progress in democratic development and respect for human rights, and should increase public participation in the decision-making process. This is the only way to reduce the corruption that is the main reason for the region's economic crisis, worsening social situation and deep inequity in society. The use of "free public money" cannot be justified unless the project clearly demonstrates positive local and regional development impacts over the next 30 years - which, according to the oil companies, is the planned lifetime of the pipeline.

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1 "Wisdom of Baku pipeline queried", Financial Times, November 4, 1998.

2 "Development of the region's oil and gas resources has the potential to deliver significant and sustained economic benefits to Georgia", explained Judy O'Connor, country director for Georgia at the World Bank, in a July 2001 letter. Also see World Bank Azerbaijani CAS evaluation, 2000

3 "Issues raised over which there are unrealistic expectations, have been addressed through provision of information to villagers to manage expectations and, where possible and appropriate, other community investment activities", Consultation, Chapter 9, ESIA, BTC Project, p.8.

4 "It is important that the BTC project provides accurate information on energy during the construction and operation phases (both energy usage and initiatives in partnership with the Georgian government) in order to avoid potential disappointment. After a year of regular consultation within communities, energy expectations have been reduced to a certain extent, but will still require careful management in the future". Executive Summary ESIA, BTC Project, page 37.

5 Local NGO from Akhalstikhe.

6 Local Sakrebulo head, Vale.

7 Azerbaijan and Georgia are ranked by Transparency International among the most corrupt countries.

8 "Commentary: Gloomy picture overshadows oil bonanza", by Michael Lelyveld. May 8, 1999, www.atimes.com.

9 Azeri, Chirag & Guneshli Full Field Development Phase 1, Environmental & Socio-economic Impact Assessment, Executive Summary, BP, November 2001, ES/3.

10 protected under the UNESCO Natural Heritage List.

11 Protected territory, IUCN IV category.

12 E.g. World Bank Operational Policy 4.01. IFC operational policies 4.01, 4.04. and OPN 4.11.03.