Baku-Tiblisi-Ceyhan Pipeline (Hansard, 5 November 2003)

§ Baroness Amos

On 4 November the Executive Board of the International Finance Corporation (IFC) agreed to provide a loan to help fund the Baku-Tiblisi-Ceyhan (BTC) Pipeline. The IFC decision was taken by the IFC Executive Board on which 175 shareholders are represented by 24 directors, including the UK. The IFC loan, which will be at commercial rates of interest, is for around 4.5 per cent of the total cost of the BTC pipeline and accompanying Azeri-Chirag-Gunashli (ACG) Phase 1 oil field development projects.

The BTC pipeline will provide an export route for oil from Azerbaijan's Caspian oil fields. The Governments of Azerbaijan, Georgia and Turkey— the countries through which the pipeline passes— strongly support the project and have negotiated agreements with BTC Corporation, the pipeline company. Azerbaijan, a low-income country, will benefit from significant revenues from the ACG oil field development. Georgia, also a low-income country, will benefit from transit revenues of up to 10 per cent of current GDP per year. The pipeline will help to strengthen cooperation between the three countries and increase their links to global markets. It will provide local employment and demonstrate the potential for foreign investment. The construction of the pipeline, which will be buried underground, has already started.

Responsible and transparent management of oil revenue will be vital if the BTC project is to achieve real development benefits for the people of the region. Working to achieve this will need to be a priority for the governments of the region, with support, assistance and oversight from civil society, the private sector and the international community. The agreement of BTC to "publish what it pays" and in turn the agreement of Georgia and Azerbaijan to "publish what they receive" are welcome steps. The UK will continue to work to increase transparency and build local capacity in decision making on the use of 109WA revenues, including through the Extractive Industries Transparency Initiative (EITI).

The Department for International Development (DfID) is not providing any direct funding for the BTC project. DfID's role is as a shareholder of IFC and of the European Bank for Reconstruction and Development (EBRD)—whose executive board will consider finance to BTC on 11 November. The institutions carried out rigorous social and environmental, integrity, legal and commercial due-diligence procedures. In accordance with standard practice, DfID did not duplicate the due diligence undertaken by these institutions.

Over the past year, DfID officials have met with local and international NGOs, staff from IFC and the EBRD, BTC and representatives of the governments involved to build better understanding of the benefits and risks associated with the pipeline. In view of the project's complexity, DfID commissioned consultants to do an assessment of the BTC Environmental Assessment. They confirmed compliance with the IFC and EBRD policies and procedures. DfID will place a copy of this report in the House of Lords' Library.

The Government recognise that large-scale pipeline projects such as the BTC pipeline present risks as well as potential benefits. Project risks include the weak governance environment and the potential social and environmental impacts of the pipeline. The multilateral institutions have thorough environmental and social safeguards procedures and genuine expertise of working in the region. We believe that their engagement provides the best prospect that the BTC pipeline will be constructed and operated to the highest standards. The UK director at IFC therefore supported the project.

We are now focusing on ensuring that the project is implemented properly. In particular we recognise the importance of very strong monitoring including NGO and community representatives. We therefore pressed IFC to:

Ensure regular independent consultation on monitoring the implementation of the project— IFC will set up a mechanism that brings together IFI staff, the sponsors, governments from the region, civil society (local and international) and representatives from the IFI executive boards in order to resolve issues arising during project implementation.

Encourage enhanced transparency of revenue management—IFC will support the IMF and the World Bank in their efforts to promote the transparency of revenues in both Azerbaijan and Georgia and to encourage the use of these revenues to support Poverty Reduction Strategy Paper objectives.

Demonstrate how IFC has learnt from the BTC/ ACG projects—IFC will ensure that these lessons are properly reviewed and inform future policy development, including in discussions of the Extractive Industries Review (EIR), and report back to the Board. We made clear that we would strongly support the use of strategic 110WA environmental assessment (SEA) for future infrastructure projects on this scale. IFC agreed to include in its review an assessment of the potential for SEA in future large scale and cross border projects. Other shareholders supported the UK points.

The challenge now is to ensure that the people of the region benefit from the opportunities offered by the Caspian's natural resources. This will require concerted effort by the countries of the region, and also by civil society, the private sector and the international community. The UK Government will work to ensure that risks, which might impact on this project's contribution to sustainable development, are addressed.