Annex 3
Letter to the Executive Directors, International
Finance Corporation, World Bank Group, 28 October 2003
IFC STAFF REPORT
TO BOARD
ON BAKU-TIBILISI-CEYHAN
OIL PIPELINE
We are in receipt of the report prepared by
IFC staff for the Board meeting on 30 October 2003 that will consider
IFC financing for the Baku-Tibilisi-Ceyhan oil pipeline.
We have analysed the document and are shocked
by its failure even to report a range of material facts that would
be central to enabling the Board to make an informed decision
as to project risks, legality, compliance with IFC standards and
benefits. For example:
— Conflict risk to pipeline:
Although the pipeline passes through areas where PKK Kurdish guerrillas
were active during the recent 18-year armed conflict between the
PKK and the Turkish state, the report fails to mention that the
PKK has now abandoned its unilateral ceasefire or that it has
specifically named pipelines as "legitimate targets".
Significantly, the report fails to make any mention or comment
on the Kurdish conflict in Turkey when assessing project risks.
— Potential breach of International
Law: The report states that Armenia, Iraq and Syria have been
notified as to potential downstream impacts from oil spills, as
required under the Bank's safeguard policy in International Waterways.
However, it fails to inform Executive Directors that general international
law requires not only notification but also consultation and negotiation,
neither of which are reported to have taken place.
— Political Instability: The
report states that the Government of Azerbaijan has a "strong
interest" in maintaining stability. The events surrounding
the seriously compromised elections in Azerbaijan, featuring the
first dynastic transfer of power in the post-Soviet states amid
widespread allegations of vote-rigging and well-chronicled assaults
on journalists and members of the opposition, suggest that the
IFC staff's assessment is highly misleading or based on inadequate
intelligence about political stability in Azerbaijan. Indeed,
all the evidence suggests that the region is becoming less democratic
rather than more so.
— Azerbaijan Oil Fund: In Azerbaijan,
the State Oil Fund used for BTC revenues is non-transparent, accountable
only to the president and its uses and aims have not been clarified,
although it was previously used to pay for BTC construction costs,
in contradiction to IMF rules. The IFC report discusses the oil
fund (p40) but omits to mention the abuse of the fund to date
or the problems experienced in ensuring its democratic oversight.
— Non-compliance with IFC Safeguard
Policies and Project Agreements: The report neither mentions,
nor responds to the 173 violations of World Bank safeguard policies
identified by NGOs for the Turkish section of the pipeline alone,
despite IFC staff being informed of them during the EIA public
disclosure period. Such violations include: 153 partial or total
violations of IFC and EBRD Operational Policies; 18 partial or
total violations of the European Commission's Directive on EIA;
two direct violations of other Turkish law.
— Breaches of Host Country Law:
Because compliance with the above standards is required under
the legal regime for the project, such violations of relevant
standards put the project potentially in conflict with host country
law. As such, the project appears to be in fundamental breach
of the IFC's requirements that the projects which it finances
comply with domestic law. The report neither addresses this issue
nor replies to violations identified by NGOs.
— Continuing concerns over human
rights implications of Host Government Agreements: The report
suggests that Amnesty International's concerns over human rights
issues related to the Host Agreements have been resolved (p 14).
In fact Amnesty has stated that it still has reservations about
the agreements, despite the Deed Poll signed by BTC Co. Although
Amnesty responded before the IFC staff report was written, the
group's disclaimer is not mentioned.
— Outstanding Legal Issues:
The report fails to mention that the project is subject to an
official complaint to the European Commission (EC) by non-governmental
organisations and affected villagers from Turkey. The complaint
argues that the project agreements with Turkey put Turkey in breach
of its Accession Partnership with the European Union, since in
derogating from so many sovereign powers it is moving away from
rather than towards the acquis communitaires. The EC is
currently investigating the project and will report on 5 November
2003. IFC have stated to NGOs that a ruling by the EC in favour
of the NGOs' case would mean that the IFC could not fund the project.
— Inadequate Consultation: The
report states that there has been "comprehensive consultation"
and that consultation procedures go beyond IFC requirements. This
is highly misleading. The EIA for the project itself reveals that
fewer than 2% of people were consulted face to face and NGOs have
identified 83 violations of six key World Bank guidelines related
to consultation. The report neither mentions nor discusses these
violations. Claims made in the report on consultation also conflict
with the evidence presented in the EIA—for example, it is
stated that consultation took place "before specific corridor
selected" (pp 35-36) when the EIA only places the start of
face to face consultation with communities at September-October
2001.
— Natural Habitats: IFC staff
have given Executive Directors an incomplete list of sensitive
natural habitats (para 9.21). In particular, no mention is made
of the Ulas and Alacorak potential Ramsar wetland sites, which
contain species significantly at risk.
— Use of Emergency Powers to speed
up resettlement in Turkey: In order to keep to the project's
construction timetable, Emergency Powers available to the Government
of Turkey have been invoked to override key provisions of OD 4.30,
in breach of both Turkey's obligations under the Host Government
Agreement for the BTC project and in flagrant violation of the
BTC Consortium's commitments within the Resettlement Action Plan.
For poorer people, the likely outcome is that they will be worse
off than before the project. Some are already talking of having
to leave their lands. The invocation of emergency powers is not
mentioned in the report nor are its implications discussed, including
the high probability of cases being brought to the European Court
of Human Rights.
— Cumulative Impacts: The IFC
staff report misleadingly states that the EIAs have reviewed all
known regional oil developments (para 9.39). No mention is made
in the EIA of trans-Caspian oil shipments from Kazakhstan which
are likely to be routed via BTC and without which BTC is arguably
financially marginal.
— Alternative Routes through Borjomi:
The report omits to mention that the Dutch Commission for EIA,
which reviewed the EIA for Georgia at the request of the Georgian
Government, has deemed a number of alternative routes technically
feasible. Other inadequacies in the assessment of alternatives
raised by NGOs during the disclosure period are neither mentioned
nor addressed.
— OD 4.20: The report argues
that OD 4.20 is not applicable. It fails to respond to detailed
NGO representations made during the disclosure period which contests
this view or to inform the Board that NGOs are preparing a complaint
to the Compliance Advisor Ombudsman on the failure to apply OD
4.20. It also fails to inform the Board that its "vulnerable
peoples" approach does not reflect any agreed IFC policy.
— Monitoring: Although the report
stresses the multi-layered monitoring procedures for the project
(p 20), it fails to mention that the BTC Consortium had failed
to comply with its commitment to publish an external resettlement
review at the beginning of September, as required under its resettlement
monitoring plan. The report was still to published at the time
IFC wrote to EDs. Yet timely publication of monitoring reports
is described as "key" by the report (p 20). Other statements
claiming that the mitigation procedures have been "proven"
to be in compliance with IFC standards are simply not true.
— Doubts over Competence of Implementing
Agency: The report acknowledges the poor social and environmental
record of BOTAS, the company that will build and operate the pipeline
in Turkey (p 43). However, it claims that this risk has been mitigated.
No mention is made of the fact that BOTAS's implementation of
the resettlement programme has already led to major violations
of the Bank's resettlement policy which have not been addressed
through mitigation measures (see also below).
— Financial Profitability: The
IFC report states that the transit fee will be $4.67 a barrel.
BTC Co. has repeatedly given figures in public that are below
$3.50. As recently as September 2003, SOCAR stated publicly that
the fee will be in the range of $3.30-$3.50. The discrepancy is
not mentioned, nor discussed, despite the clear implications for
the finances of the project.
The above omissions constitute a serious abuse
of the IFC's decision-making procedures and raise serious questions
as to whether or not the IFC staff have deliberately attempted
to mislead the Board. If EDs are not properly informed by staff
of the full range of risks associated with a project, they are
not in a position to make an informed judgment as to a project's
legality, political risks, development impacts and reputational
risks to the World Bank Group.
In addition to investigating the IFC staff's
failure to present key material facts before the Board, we would
therefore urge you to press for a delay in the Board's decision
on the Baku-Tibilisi-Ceyhan project. We believe the case for such
a delay is now overwhelming:
(1)
Unresolved Problems: Can
the IFC confirm that none of the 173 identified violations identified
by NGO are valid? Does the project not need to be amended if they
are? Are the necessary structures in place in the three countries
and within BTC Co. to ensure local "stakeholders" really
benefit? What is the likely impact of Kazakh oil if, as predicted,
it enters the pipeline?
(2)
Ongoing Investigations into the project:
As well as the European Commission investigation, there is an
OECD complaint pending against BP, a court case ongoing in Georgia
and a complaint to be raised with the IFC CAO about the failure
to apply OD 4.20. Why decide to fund the project before all these
are completed, particularly when the IFC report admits an adverse
ruling in the Georgian courts would amount to a default in the
loan?
(3)
Lack of Legal Clarity:
Does the HGA imperil Turkey's EU accession? Why does BTC Co. insist
on retaining the "stabilisation clause" allowing it
to get compensation from the host countries if, as it insists,
it doesn't intend to use it? How are affected people supposed
to get their rights to effective redress?
(4)
Due Diligence Concerns:
There are serious failures of due diligence in the IFC's work
thus far. Bearing in mind the very critical report of its own
CAO, will this report simply confirm that the IFC seems willing
to put political pressure over its own mandate for development?
|
