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Social impacts of the BTC pipeline
Even for the narrow strip of land directly occupied by the pipeline, there have been many complaints that compensation for the NGP pipeline was not fair, and generally undervalued land – for example, by paying no more for fertile, productive land than for unusable rocky slopes in the mountains. It was widely expected that any compensation for land taken by the BTC oil pipeline would be just the same. There were also deeper problems with the compensation regime in Turkey. Botaş has made it clear that it will only compensate officially registered title-holders of any land the company takes. Yet across much of Turkey, land has been passed on to subsequent generations, without the official transfer of titles, since the Turkish state charges such high taxes and fees for transfer of titles that villagers prefer to use informal methods of land titling. Thus the titles for a very large proportion of the land along the route of the BTC pipeline are actually in the name of people who are now dead – so those who really own and use the land stood to receive nothing. As a direct result of the Baku Ceyhan Campaign, the land compensation regime in Turkey has improved. In a Fact-Finding Mission to Turkey in March 2003, campaigners found that this policy had been changed, and through most of Turkey people were being compensated even if they did not have title. This is thanks to the hard work of campaign supporters - well done to everyone who has written a letter or been otherwise involved! However, in the northeast of Turkey, where there is a large Kurdish population, this new policy is not being applied, and those without title are still losing land without compensation. There are even some reports that in cases where compensation was paid, BP's contractor BOTAS has taken landowners to court to try to claw back its payments. The Mission also found other problems with compensation, including: Meanwhile, a Fact-Finding Mission to Georgia in May 2003 found that criminal elements are extorting the compensation payments from the landowners who have been paid them. Also, disagreements over land ownership and payments have created tensions within some communities. And in Azerbaijan the Mission found that: As well as private property, community and public property has been lost. Roads to villages, for example, were badly damaged by heavy machinery driving over them during construction of both BP’s Baku-Supsa ‘early oil’ pipeline in Azerbaijan and Georgia and Botaş’ NGP pipeline in Turkey. BP and Botaş respectively promised at the time to rehabilitate these roads after construction, a promise that was not kept. In at least one village, Baku-Supsa construction activities also damaged a water pipeline supplying the village. BP refused to repair the water line, and the villagers had to carry out and pay for the work themselves. Now BP is making promises to communities about the construction phase of the BTC pipeline. But having breached people’s trust once already, how can BP convince people that this time it really will be different?
There has been much debate about whether in fact Azerbaijan might suffer from Dutch disease – the name for the phenomenon where an economy regresses rather than grows due to oil investment. One of the main reasons is that the economy’s capacity is all taken up by the oil development, sucking resources out of other sectors. Meanwhile there are major impacts on wages and currency exchange. Since the mid-1990s, the real exchange rate of Azerbaijan's currency – the manat – has appreciated markedly, due to oil revenues – severely damaging the non-oil sector's competitiveness. Meanwhile, the over-dependence on a single commodity – oil – makes the country vulnerable to the damaging impacts of the sharp price fluctuations that characterise the oil market. These concerns about the shock to the economy are not restricted to Azerbaijan. BP estimates that 10,000 construction workers will be employed in total along the whole route – a massive influx into the region that would force up food and housing prices, making life more expensive and more difficult for local people. The experience of the early oil project has been grim. The port of Supsa, at the end of the Western Route Export Pipeline, was before the arrival of the oil project a thriving market town. Then during the two years in which local men were employed building the terminal, no-one was left to work in the rest of the economy, which collapsed. Once the temporary construction phase was over, there was no work to return to. A report on the website, Eurasianet, describes the scene now: "Outside the train station men sit and wait. And wait. And wait. There is no work in Supsa, so the most predominant image is groups of men of all ages sitting and waiting. Waiting for the day to end, for the next bottle of wine, vodka or chichi (Georgian vodka made from the skins of grapes, a by-product from the wine making process). Waiting and watching."
Threatening mineral water – Georgia’s largest export The pipeline threatens the mineral water springs in the Borjomi district of Georgia, undermining or even destroying Georgia’s main source of export income (Borjomi currently supplies 70% of the Russian mineral water market) and threatening the major source of employment in the area. The construction of the BTC pipeline has meant severe reputational damage to the Borjomi plant. Many people are dependent on the Borjomi mineral waters for their livelihoods. Jobs in the bottling plant and export facilities are long-term, compared to the temporary employment that BTC construction offers. BP refused to reconsider the routing so as to avoid the important springs. In fact, BP placed considerable pressure on the Georgian government to approve the environmental impact assessment in order to satisfy BP’s commercial priorities, despite the government’s concerns about how to mitigate the pipeline’s impact on the Borjomi waters. The Georgian Environment Minister said she was still not satisfied that BP had even met the conditions it had agreed to when it got the approval. Furthermore, in June 2003, the mayor of Borjomi town was sacked by the regional governor, for expressing concerns about the risk to the local economy posed by the pipeline.
When NGOs travelled to the pipeline region on two fact-finding missions in summer 2002, they were told many time that the two biggest development priorities were a secure energy supply and better roads. Neither will be helped by the BTC pipeline, and roads may even come out worse, as we have noted. The regions that the pipeline passes through suffer from great energy poverty. Although communities along the route in Azerbaijan and Georgia used to have electricity and gas under the Soviet system, they now lack secure supplies of energy. Few villages now have either piped gas or electricity. For cooking and heating, they have to buy expensive gas canisters, when they can. While a million barrels of oil and 20 million cubic metres of gas will pass through these villages every day, they will get nothing. All of the oil from BTC would go to Europe and North America. The export of almost all of the oil produced in Azerbaijan has led to severe contraction of Azerbaijan’s petrochemical industry, and the loss of jobs. Many skilled workers have gone overseas to find work in the sector. Refined oil products are now imported – which is bad for the country’s balance of payments. Local NGOs argue that even as an export, Azerbaijan would benefit far more from the value added revenue in refining and Azerbaijan should develop its ability to process the oil. Furthermore, there is no quality car oil in Azerbaijan - the main product available is mazut, a heavy, low quality oil product, which is used for generating electricity. Azerbaijan still has the people trained to work in refining, and continues to turn out highly educated petroleum engineers from its University. But with the high level of unemployment, especially in skilled jobs, thousands of highly-educated Azerbaijanis have already left the country for the Former Soviet Union, the Middle East, or for the West.
It seems the main potential benefit to communities from the BTC pipeline is the opportunity of jobs during construction. But these will be few, short-term and poorly paid. When the Baku-Supsa pipeline was built by BP between 1997 and 1999, BP promised great employment opportunities, which did not materialise. A few villages had a very small handful of their residents employed, on low wages and with unfavourable contracts. Most villages had no-one employed at all. In Azerbaijan and Georgia, BP set up registration centres in major towns along the route, where local people can put their names down to be considered for work. Communities that already had the experience of the Baku-Supsa pipeline were generally quite sceptical about the employment prospects. But for those without this experience, the registration process only served to encourage unrealistic expectations about possible employment levels. For example, in the town of Tetri Ts’karo in Georgia, an estimated 2,000 people registered for work. But in fact, only about 1,700 people were employed in the whole of Georgia – at least half of whom were foreign, and many more of whom would be non-local, from elsewhere in Georgia. Thus at most 50-100 people from Tetri Ts’karo got jobs, out of the 2,000 people who were hoping for them. Even those jobs were only for a few months. NGOs in Azerbaijan also complain of discriminatory labour practices by BP with jobs going to non-Azeri staff despite the local availability of the required skills, and with foreign workers being paid far more than locals. The Environmental and Social Impact Assessment for Turkey admits that only 20-30% of the pipeline workforce are local people living near the pipeline route - the rest come from abroad or elsewhere in Turkey.
A common thread running through BP’s operations around the world is the company’s effectiveness in minimising the amount of revenue from the resources it extracts that goes to the host state. [more on tax avoidance by BP in other countries] One of BP’s most powerful lobbying tools is the threat of withdrawing from a country, arguing that it can more lucratively relocate elsewhere – a tactic the company has repeatedly employed, even in countries where it was making substantial profits, including Colombia and the UK. After all, BP is the biggest foreign investor in Azerbaijan. And both the USA and Turkey needed BP’s support to achieve their geopolitical ends. It seems that over the last 14 years – in the establishment of the commercial framework of the project, including the taxation and transit fee arrangements – BP has used this tactic to powerful effect, and obtained through these negotiations an extremely favourable deal. The BTC pipeline was first conceived in 1992. For the following seven years, BP – the oil industry leader in Azerbaijan – refused to commit itself to supporting the pipeline project, despite string pressure from the US and other governments. In late 1998, BP’s John Browne dropped a heavy hint: BTC would not be possible unless "free money" was offered by governments to build the line. By April 1999, taking the hint, Turkey was offering significant incentives on transit fees. Still BP resisted, and it was not until October that year that BP publicly indicated cautious support for the project. BP did however add another hint with its announcement: that the project must be a commercial one rather than a political one. Heavy negotiations continued between BP and Turkey. In November 1999, Turkey agreed to guarantee the construction cost of the Turkish section of the pipeline: any cost above US$ 1.4 billion would be covered by the Turkish state, through its nationalised pipeline company Botaş. This offer was considered a great bargain for the oil companies. Some analysts estimated that the guarantee at this cost figure shaved $600 million off the project cost to the companies. Furthermore, for a project the scale of the BTC pipeline – which is subject to complex political, economic, social and environmental tensions and possible delays – construction risk is an enormous factor. With costs commonly escalating for such projects to anything from twice to ten times the original estimate, the Turkish government may have signed an enormous blank cheque. That is not the only blank cheque. The Host Government Agreements for Azerbaijan, Georgia and Turkey commit all three governments to a number of open-ended expenditures. These include the full costs of ensuring security for the pipeline and the costs of compensating the BTC consortium for any losses incurred as a result of the introduction of new social and environmental laws over the next 40 years. No budgetary provisions appear to have been made by any of the host governments to cover such expenditure – raising the prospect of future national debt further harming the prospects of their populations. In July 2003, the European Bank of Reconstruction & Development stated that "BTC sought EBRD involvement because there are political uncertainties in the Caspian region that could affect the investment in the pipeline. The EBRD could have a stabilising role and provide political comfort through its extensive investment experience in Azerbaijan and Georgia, as well as its close cooperation with those countries' authorities." This is a euphemism. "Political uncertainties" refers to the "risk" to the companies' profits that host governments might in the future recognise that they have got a bad deal, and try to increase their revenues. EBRD and IFC are being involved in the project because the governments will be less willing to act against them than against the oil companies, as the banks could threaten to withhold future aid and loans. Ironically, these development banks, whose mandate is to support economic and social development in poor countries, are being involved in the BTC project precisely to prevent the countries from getting any more development than BP wants them to have.
It should also be asked whether the deal would get worse over time, during the 40 or more years of BTC’s operational life. In its operations elsewhere BP has used its industrial assets to drive down the host state’s tax revenue long after the construction of a pipeline system, indeed throughout its period of operation. For example, as of July 2002, BP is still battling with the UK Exchequer over its tax and royalties payments, nearly 27 years after the opening of the Forties Pipeline System. There are already indications that Azerbaijan, Georgia and Turkey may have a similar experience, if the ‘early oil’ project is anything to judge by. For the Baku-Supsa pipeline, Georgia was expecting to be paid a port fee for the use of the Supsa port, as well as the transit fee for the land passage of the pipeline. But tankers refused to pay anything for being loaded at Supsa, resulting in an estimated loss to the Georgian state of US$ 2.5 million per year. In June 2002 a Greek tanker was detained at Supsa, for its unsettled account, but BP intervened and forced the port authorities to release the tanker without payment, pointing to the terms of the Host Government Agreement for the pipeline. The agreement does not specify a precise arrangement for tankers: BP claims this means that tankers cannot be taxed, but the Georgian government believes no such restriction can be interpreted from the contract. BP has threatened that it will go to international arbitration if Georgia attempts to charge the tankers. It is certain that the terms of the government agreements can only move in one direction. The host governments are specifically precluded from adjusting the terms without approval from BP and the other consortium members. BP, on the other hand, has enormous political clout to insist on such changes.
Widespread corruption is likely to result in revenues from the project being creamed off or used for the benefit of the elite – and thus denying them to the poor, and to those most affected by the pipeline. Azerbaijan is ranked by Transparency International as the world’s third most corrupt country. High levels of corruption have also been reported in Georgia, and in Turkey the World Bank says that contractors have traditionally been asked to pay up to 15% of the value of state contracts to politicians as "state contributions". NGOs report that villagers have had to pay bribes of $500 to secure pipeline jobs, in some cases being forced to sell cattle and property to raise the money. A complaint was also made to the World Bank regarding contract rigging in the award of a contract by the Georgian International Oil Company for work on the Environmental and Social Impact Assessment for BTC. Corruption allegations – denied by BP and its partners – also surround the Production Sharing Agreement reached in 1994 between the Azerbaijan Government and the AIOC oil company consortium, for the development of the major oilfields that would feed the BTC pipeline. Bribes were allegedly channelled through two offshore companies in the AIOC consortium. The names of the companies, which are said to have been owned by the Aliyev family, were allegedly not disclosed in the PSA. Three of the companies involved in the BTC consortium are registered in tax havens, where they do not have to disclose their accounts. In April 2003, a businessman in Kazakhstan connected with ExxonMobil was charged with making unlawful payments of over $20 million to Kazakh officials. The BTC pipeline plans to take Kazakh oil as well as Azerbaijani, and the case raises serious concerns about oil company operations in the Caspian generally. This lack of transparency, against a background of extensive corruption, will lead to an unfair distribution of any benefits that do come from the pipeline.
Information on social and economic development
Information on corruption
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