Oil Consortium Seeks "Free Public Money" to Build Caspian Pipeline

by Jim Lobe

Potential backers of the Baku-to-Ceyhan pipeline include the World Bank and national export credit agencies.

BP, which leads a consortium of oil companies that includes Italy's Eni, Statoil of Norway, and California-based Unocal, has said it will need hundreds of millions of dollars in what its chief executive, Sir John Browne, referred to as "free public money" to help finance the construction of the $3 billion pipeline.

"We believe that the use of "free public money" cannot be justifiable unless the project is able to clearly demonstrate positive local and regional development impacts associated with the project over the next 30 years," the NGOs said in a letter yesterday.

The three-page letter and a much longer memorandum were sent to World Bank President James Wolfensohn as well as the directors of the European Investment Bank, the European Bank for Reconstruction and Development, the U.S. Export Import Bank, the U.S. Overseas Private Investment Corporation, and the Japan Bank for International Cooperation.

The proposed pipeline, which will run some 1800 kms from the capital of Azerbaijan, through Tbilisi, Georgia, and southeast Turkey to the Mediterranean port of Ceyhan, has evoked great controversy since the idea was first put forward more than eight years ago.

Primarily for geopolitical reasons, the administration of President Bill Clinton strongly supported construction of the pipeline -- at one point offering it $500 million in loan guarantees -- as an alternative to shipping much of the 40 billion barrels of oil that are believed to lie under the Caspian area via more direct and much cheaper pipeline routes through Iran and Russia.

Although President George W. Bush has promoted closer ties with Russia, his administration remains a strong backer of what is now referred to as the BTC (Baku-Tbilisi-Ceyhan) pipeline as a way of diminishing the chances that any hostile power could gain a chokehold over Caspian oil and depriving Iran of a valuable source of income.

The project has not only been assailed for its redundancy given existing routes, but also because it will travel through areas which have seen considerable political and ethnic conflict over the past decade.

In the early 1990s, Azerbaijan and Armenia fought a bloody war whose final resolution continues to elude U.S. and Russian mediators. The proposed pipeline at one point runs little more than 10 kms from their common border. In March, Washington announced that it would soon provide military aid to Azerbaijan's navy, presumably to protect its claim to a sector of the Caspian Sea also claimed by Iran.

Georgia, meanwhile, remains home to at least three ethnic insurgencies, two of which have been backed by Russia at various times. The third, in the Pankisi Gorge close to Chechnya, has become a major target of Bush's war on terror in whose name Washington last month sent more than 100 Special Operations Forces to train Georgia's army.

Finally, southeastern Turkey is the traditional homeland of that country's restive Kurdish population which has a long history of armed resistance to Turkish rule.

"This pipeline would militarize a corridor running from the Caspian to the Mediterranean, according to Kerim Yildiz of the London-based Kurdish Human Rights Project, one of the letter's signers. "This could threaten the fragile cease-fire in the Kurdish region through which the pipeline will pass."

But the security risks are only of a series of concerns raised by the NGOs, some of which took part in a visit to villages located along the pipeline route in Azerbaijan and Georgia earlier this month.

"We are concerned that the pipeline will bring few benefits to poorer people and could exacerbate tensions in the region which is just recovering from a number of major governments," the groups, which are led by Friends of the Earth (FoE) International and a dozen of its national affiliates.

The NGO delegation, which included representatives from the United States, Italy, Britain, Ukraine, and Georgia, found that the local people were very concerned about their future in light of BP's plans.

"The two biggest issues for the local people are getting jobs and energy" from the project, according to Carol Welch, deputy director of programmes for the U.S. branch of FoE. "BP has informed (them) that the project is going forward, but they've provided little or no information about its plans and impact. They are skeptical that will see any benefit."

"Some people will lose their entire livelihoods because of the project, and it is likely that the companies' promises to bring jobs and local development will not be met," according to Petre Holobil of CEE BankWatch in Prague. "Local people lack basic energy supplies, but the oil and gas from the Caspian will be piped straight to western markets. Local communities will be bypassed completely."

The groups, which also include Novib of the Netherlands, Italy's Campaign to Reform the World Bank, and Germany's Urgewald, among many others, are demanding that more information about the project be made available to the local people who should be fully consulted and provided with assurances that they will be supplied affordable sources of energy before the project is approved.

The groups also express great concern over possible corruption surrounding the project and revenues earned by it, particularly in Azerbaijan whose president, Gaidar Aliev, has been given sole power to approve expenditures from a recently created Azeri Oil Fund.

Any financial support from external public agencies should be strictly conditioned on putting in place credible oversight mechanisms guaranteeing transparency in the Fund's operations, according to the letter.

Financing agencies should also assess the project's impact on climate change, according to FoE International's Kate Hampton who points out that the oil transported along the pipeline will contribute 185 million tons of carbon dioxide emissions once burned. "If public money is used for this pipeline, we will all be subsidizing dirty energy, both here and elsewhere."

Welch says the letter marks the beginning of a broader campaign that will enlist other international NGOs, such as Greenpeace.