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CDAP Progress Report - March 2005


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CDAP Progress Report - March 2005

  1. 1. Caspian Development Advisory Panel BP Report on Progress, March 2005 The Caspian Development Advisory Panel (CDAP or ‘the Panel’) was commissioned by Lord Browne, Group Chief Executive Officer of BP, in January 2003 as an independent, external advisory body to provide Lord Browne and BP with objective advice on the economic, environmental and social impacts of the Baku-Tbilisi-Ceyhan oil pipeline (BTC pipeline) and other related BP activities in Azerbaijan, Georgia and Turkey. Since January 2003, the Panel has made three visits to the region; Azerbaijan and Georgia in March 2003; Turkey in September 2003; and all three host countries in October 2004. It has also held meetings with government officials, non-governmental organizations (NGOs), think tanks, academics, and other experts in London, Washington, D.C., Azerbaijan, Georgia, and Turkey. During this time the Panel has been able to observe the BTC pipeline project from the outset of the construction phase through to its final stages of completion. The Panel has made a number of important recommendations that BP welcomes and continues to give serious consideration to during the construction of the BTC pipeline and other related developments. The advice and recommendations provided by CDAP cover a wide range of project issues, such as investment in sustainable development, security and human rights, transparency and revenue management, managing contractors, and the land acquisition and compensation process. This Progress Report summarizes the measures BP and BTC Co have taken with respect to the Panel’s recommendations. In the comparatively small number of cases where we have disagreed with certain of the Panel’s recommendations, senior staff have set out clear explanations for taking a different approach. It is primarily envisaged as an update and extension to our response to the Panel’s Second Report which was published in January 2005. It is being updated now because of significant progress in a number of areas, and published as oil begins to enter BTC. The activities of BP and BTC within the region are also monitored by a number of other expert groups, including the Independent Environmental Consultant engaged by the BTC Lender Group to monitor compliance with the BTC Project Environmental and Social commitments, and the Expert Panel responsible for assuring the success of BTC’s Social and Resettlement Action Plan (SRAP). The reports of these groups discuss many of the issues raised by CDAP, and are referenced here where appropriate. Page 1 of 22
  2. 2. The Panel will make a further visit to the region in late 2005 and issue its report in early 2006. We believe the Panel’s work will continue to prove of great value in maintaining the unprecedented level of consultation, public scrutiny, and engagement that has characterized these projects to date and we share their view that BP’s Caspian projects provide “an opportunity to develop a new model for large-scale, extractive industry investments by major, multinational enterprises in developing and transition countries”. I. Sustainable Development In its first report published in August 2003, CDAP recommended that BP make a clear commitment to investment within the Caspian region as a whole, that this commitment should extend beyond the construction period to the full lifespan of the Caspian Projects, and that BP work in partnership with other international development institutions active in the region to leverage the investments made. These recommendations have led to a unique approach to sustainable development, through the creation of the Regional Sustainable Development Programme. This aims to achieve a very simple, but nevertheless ambitious objective: to fulfil a pledge to people living in Azerbaijan, Georgia, and Turkey that we will do all we can to ensure that the revenues which we help to generate will create sustainable benefits to those most directly affected, as well as to us as a company. The Programme has two elements: the continuation of our activities aimed specifically at those communities situated close to our facilities (the “Future Communities Programme”), and the creation of the Regional Development Initiative (RDI), a multi-million dollar programme of sustainable development in Azerbaijan, Georgia, and Turkey that is envisaged as operating and offering benefits for the lifetime of the Caspian Projects. BP has made an initial net commitment of $25 million to the RDI alone with further funding for continuing community investment programmes and a substantial grant programme to projects in Georgia. We will be seeking additional support from oil company partners in the projects, and from others. RDI will focus on enterprise development, effective governance and access to energy, within which building capacity will be a priority. The overall purpose of the initiative is to deliver a long-term contribution to the social and economic development of Azerbaijan, Georgia and Turkey by combining the experience, skills and resources of its partners. BP appointed an RDI manager within its sustainable development team in June 2004, and has recently appointed a development advisor to lead the initiative in Georgia. It has also recently appointed a manager for its Future Communities Programme, to expand and build on the current BTC/SCP Community Investment Programme (CIP) initiatives, which were described Page 2 of 22
  3. 3. as “excellent models for delivery of corporate social investment and community assistance” by the SRAP Expert Panel in February 2004. As part of the RDI, BP has signed memorandums of understanding with the EBRD, IFC and GTZ/KfW. Together these groups have developed programmes focusing on micro-finance and lending to small-to-medium sized enterprises, on supply chain finance, and on energy. Over the past six months a development professional on secondment from the UK Department for International Development (DFID) has been working with BP to develop the governance structure for running the RDI. In October 2004, the RDI launched its first pilot project, in the towns of Borjomi and Bakuriani in Georgia. The project is being implemented as part of the Greater Borjomi Initiative, and seeks to provide social and environmental benefits through improved waste management. A further project in Georgia in partnership with the EBRD aims to provide banking services and finance opportunities to micro, small, and medium-sized enterprises (MSMEs) close to the pipeline route. BP’s intention is to build on the experiences it gains from these pilot programmes and from the BTC/SCP Community Investment Programme. Further investment is anticipated as a result of these reviews. In its most recent report – a letter to BP Group Chief Executive Lord Browne in December 2004 – the Panel recommends that “BP review the size of its initial RDI commitment with a view to ensuring that it represents a commitment commensurate with the size and importance of the projects and BP’s role in the region”. BP is currently reviewing the funding arrangements for RDI, in discussion with partners. As implementation of the Regional Sustainable Development Programme progresses, BTC Co and SCP Co are identifying synergies with existing projects under the Environmental Investment Programme (EIP). These synergies will reflect BP’s intention to build on the programmes’ successes, and also to benefit from those lessons learnt so far, as the investment programmes continue after the completion of pipeline construction, and into operations. The continuation of these priorities will enable BP, BTC Co, and SCP Co to develop and build lasting relationships with those communities most directly affected by their projects. CDAP has also recommended that significant investment be directed at building and strengthening civil society in the region, with a particular focus on investment in cross-sector capacity building through initiatives that improve technical proficiency. One major project is aimed at developing the capacity of national NGOs. BP and BTC have instituted a programme of monitoring of its project and operational activities by Georgian and Page 3 of 22
  4. 4. Azerbaijani NGOs. The monitoring programme, facilitated in Azerbaijan by the Open Society Institute, and in Georgia by the Eurasia Foundation, contains a significant element of training and capacity building, on such topics as proposal development, monitoring methodologies, and report writing. BP and BTC contribute to the programme by providing access to staff and facilities, and by meeting the costs of training and logistics. The first reports from the NGO monitoring programme in Azerbaijan, on the themes of society, the environment, human rights, local content, and cultural heritage, are expected by the end of May 2005. Reports from the Georgian programme are expected in the second half of 2005. In Turkey, BTC Co and the IFC recently agreed to fund a project led by the Turkish NGO SÜRKAL, a CIP Implementing Partner, which aims to support and develop the capabilities of NGOs and Community Based Organisations (CBOs) in northeast Anatolia. The project will train NGOs and CBOs in the basics of sustainable development and community-based development initiatives, while also building capacity in governance, fundraising, and project management, with the aim of increasing their ability to develop and then obtain funding for their own projects from the national and international donor organisations. II. Transparency and Revenue Management On 15 March 2005, the Government of Azerbaijan became the first in the world to publish a set of audited reports under the UK Government Extractive Industries Transparency Initiative (EITI). The reports, audited by Deloitte and Touche, detail aggregated revenues received by the Government from foreign and national oil and gas companies working in Azerbaijan. More details of this initiative are available in the BP Group Sustainability Report The Panel has recognized BP’s work in support of the EITI as a “useful contribution” to its goals, but goes further to recommend that publication of disaggregated data – identifying the amount and nature of financial transfers by each company – would be more in keeping with the transparency objectives of EITI. BP already makes public its financial data through quarterly press briefings and the BP Azerbaijan Sustainability Report, which is freely available in both English and Azeri. The report for 2004 will also include data from BP operations in Georgia. BP has committed to including disaggregated EITI data in this report, subject to obtaining the appropriate partner and government approvals. In its latest report, the Panel recommends that BTC Co and SCP Co report their own data as part of the EITI exercise. BTC and SCP did not participate in the EITI agreement because they are pipeline businesses as opposed to extractive businesses. However, we agree that the “distinction drawn between pipelines as transport vehicles and the extractive industries proper is no reason for BTC to be less than fully forthcoming in the EITI context”. We intend Page 4 of 22
  5. 5. to report BTC data within the Azerbaijan Sustainability Report and this will be done as far as possible in accordance with EITI principles. It is our intention to be as transparent as possible across all of our projects, subject to commercial confidentiality and approvals from our partners. The Panel recommends that BP consider partnering with international or regional development agencies to provide technical assistance to the State Oil Fund of Azerbaijan (SOFAZ) in areas of operations such as forecasting, investment management and project appraisal. SOFAZ was established in December 2000 and its primary purposes are to manage the macro-economic impacts of oil revenues and to save for future generations. BP has been supporting revenue management workshops for SOFAZ – the most recent, covering macro- economic forecasting, was completed in November 2004. Following this workshop, BP received a request from Azerbaijan Government to provide support for an independent specialist to advise on industrialisation policy and, in particular one where Azerbaijan could most beneficially spend its oil revenues. Professor John Sutton, the Head of the Department of Economics at the London School of Economics, subsequently visited Baku in March 2005 to carry out the necessary ground research, in particular meeting with small- and medium- sized enterprises in various sectors. BP will continue to sponsor Professor Sutton's work in this area with a view to making a significant contribution to the future success of Azerbaijan's economic policy. BP should also encourage the government of Azerbaijan, the Panel recommends, to develop and adopt an oil fund law that would formalize the general arrangements that exist under Presidential decrees and establish binding expenditure policies and priorities for the fund that are closely aligned with the country’s poverty reduction strategies. In September 2004 President Ilham Aliyev signed an Order on the Approval of the Long-Term Strategy for Management and Oil and Gas Revenues. BP, as a stakeholder, is pleased that the government of Azerbaijan has asked the International Monetary Fund to conduct an assessment of fiscal transparency in Azerbaijan against the international standards and codes for fiscal transparency established by the IMF and the World Bank. III. Security and Human Rights CDAP has recognized BP’s efforts and its commitment in the area of human rights but states that these commitments represent only a first step. The Panel comments: “Achieving them will require continuing leadership by senior BP and BTC officials, the commitment of resources, and a comprehensive monitoring and reporting structure focused on how these commitments are being met on the ground”. Page 5 of 22
  6. 6. A Joint Statement on the BTC Pipeline Project was signed and approved by the three host governments and BTC Co in May 2003. This was followed by the signing by BTC Co of a Human Rights Undertaking in September 2003, that makes a number of confirmations, including that the Host Government Agreements will not be used by BTC Co to seek compensation for actions required by a Host Government to fulfil its obligations under any international treaty on human rights, labour, health, safety, or environmental matters. The project partners have approved an SCP Joint Statement and an SCP Human Rights Undertaking, as CDAP recommended, and approval for this is now being sought from the three host governments. The Panel commends BTC for issuing the legally binding Human Rights Undertaking as well as the plain-language Citizen’s Guide to the BTC Project Agreement, which was released at the same time. Both are consistent with the Panel’s recommendations in its Interim Report on Azerbaijan and Georgia, published in August 2003. CDAP suggested further measures, in particular that BP and other project participants accelerate efforts to operationalise the planned arrangements for Project security and the protection of human rights, and that, to the extent publication of these documents will not compromise the safety of people or the security of the facilities, they make these more detailed security arrangements transparent and accessible to the public. BP has since agreed a Bilateral Security Protocol with the Government of Georgia, signed in October 2004, that defines standards and procedures on the use of force and firearms, on monitoring and reporting, recruitment and training of security staff, and on communication and consultation between the two parties. The agreement is publicly available in both English and Georgia on the projects website. We plan to conclude similar ‘Bilaterals’ with the Governments of Azerbaijan and Turkey. As BP is the operator of the Western Route Export Pipeline, the Northern Route Export Pipeline, BTC and SCP and related facilities, the Bilateral Security Protocols will encompass security standards for all the projects. CDAP has recommended that BP, BTC and the project partners actively engage with host governments to help ensure the implementation of security obligations is done with due respect for human rights. In early 2004, BTC Co and SCP Co entered into a partnership with Equity International to support the delivery of human rights-based training to state security organizations responsible for pipeline security. Equity International is a Geneva-based foundation that works to promote respect for human rights in law enforcement through the provision of human rights-based theoretical and practical training and support to police and security forces. Page 6 of 22
  7. 7. Equity International has delivered two training programmes for the Pipeline Protection Department (PPD) in Azerbaijan, a division of the country’s Special State Protection Service (SSPS) that is responsible for providing security for the pipelines. The programme is designed to embed a sustainable human rights training capacity into the organization of the PPD and this is done primarily through ‘training the trainers’ to a level of self-sufficiency. Equity International completed the first training course for the PPD in Georgia in October 2004 and in February 2005 embarked on the second training programme in Georgia. The Panel advises that BP and BTC should publish details on the substance and progress of any planned training activities that relate to human rights. In accordance with this recommendation we have published on the projects website a summary of the Equity International Human Rights-based training programme and a generic training curriculum. CDAP also recommended that BP and BTC Co should involve national and international NGOs in training efforts and we have made progress in line with this recommendation. During 2004 BTC Co and SCP Co supported work by the Organization for Security and Cooperation in Europe to provide civic education for local police, local NGOs and municipal employees in regions along the route of the pipelines in Azerbaijan. The project was managed by the Society of Women for Peace and Democracy in the Transcaucasus with the support by the OSCE. The programme involved coordinating 13 NGOs selected to deliver 52 seminars in the regions. These aim to build understanding of the benefits of community-based policing and trust in local NGOs by developing awareness of the groups’ rights, obligations and roles in society. CDAP recommends that BP and BTC Co undertake a comprehensive human rights training programme for both managers and personnel. In August 2004, senior line management of BTC and SCP attended a Human Rights workshop in Baku, Azerbaijan. The workshop was held to raise management awareness and understanding of key security and human rights standards and laws, and the related risks in the context of the pipeline projects. We are committed to ensuring that human rights training is also provided to our private security guards. At manned facilities in Azerbaijan and Georgia, BTC Co will employ private unarmed guards whose role is to provide security for the site and to control entry to the site. BTC Co has developed a training plan for private security guards in Azerbaijan that includes modules on Human Rights and the Voluntary Principles on Security and Human Rights. The Voluntary Principles are also included as a contractual requirement in our relationship with the private security company. BP and BTC Co will ensure that similar arrangements are put in place for private security contracting in Georgia. Page 7 of 22
  8. 8. CDAP suggests that “the use of local security personnel be sustained and even expanded, to the extent possible, throughout the operations phase of the projects, so that local communities can play an appropriate role in the execution of security planning and retain a sense of ownership of the projects...”. We have an ongoing commitment to employ local people in providing security for the pipelines and to help ensure the safety of people in project-impacted areas. For example, the pipeline route will be regularly inspected by on-foot or horseback patrols typically carried out by people employed from the local communities. The success of the Projects from a human rights perspective, says CDAP, will necessarily depend on a suitable monitoring program that (i) establishes a credible, accessible, and independent point of contact for individuals who may be the victim of human rights abuses and (ii) creates a reliable mechanism for regular, on-the-ground oversight of compliance by the host governments and their security forces with existing legal commitments. BTC Co and SCP Co have engaged the US law firm Foley Hoag to carry out independent monitoring of its compliance with the Voluntary Principles. Foley Hoag is also monitoring the appropriate discharge by BTC Co of commitments under the prevailing legal regime of the project regarding respect for fundamental worker rights and the human rights of members of local communities affected by the project. The most recent monitoring visit was completed in 4 October 2004. Further assessments will be undertaken this year and, while their reports to date have been confidential, BTC intends to publicly disclose the Human Rights Assessment that will be performed by Foley Hoag during 2005. CDAP advises that BP and BTC Co publicly provide details regarding the mechanisms that will be used for screening project personnel and that they define what constitutes a credible implication in prior human rights abuses. BP and BTC Co should also urge the host governments to take the same step. We continue to cooperate with established government authorities of each host country on this matter. It is important to note, though, that we do not screen or investigate personnel ourselves. Project personnel are screened by appropriate national security agencies. This recommendation has been or will be addressed at a general level through the Bilateral Security Protocols. For example, the Bilateral agreement signed with the government of Georgia in October 2004 sets out procedures that the government and BP will follow in hiring and screening security personnel. The Panel has suggested that BP and BTC Co make public specific guidelines for what constitutes a ‘clear risk’ to project personnel and assets. A clear risk constitutes reliable information or analysis that a person or asset is under threat of violence, extortion or fraud. Risk is assessed by collection and experienced analysis or relevant information from multiple sources such as host government, police, commercial information companies, embassies, and Page 8 of 22
  9. 9. from other companies. A general summary of the risks BP and BTC Co track on a regular basis is available on the projects website. One of the Panel’s final recommendations in the area of Security and Human Rights is that BP and its partners establish a monitoring mechanism, such as an ombudsman’s office, in each of the host countries that, subject to local law, would (i) serve as a point of contact in each country for people alleging Project-related human rights violations, (ii) confidentially investigate such allegations, and (iii) make recommendations to BTC on how to address the allegations. BP agrees on the need for a monitoring mechanism and, as described above, has appointed Foley Hoag to monitor the projects’ potential impact on fundamental human rights. Foley Hoag undertook three human rights monitoring visits to Azerbaijan, Georgia and Turkey during 2004, during which it assessed the degree to which BTC has fulfilled it human rights commitments and made recommendations to improve compliance. Foley Hoag will undertake further assessments during 2005 and the reports will be made publicly available via the projects website. Confidential investigations are the preserve of the state authorities, and are not within the legitimate remit of a private investor such as BP or BTC. However, in line with BP's commitment to the Voluntary Principles on Security and Human Rights, we will cooperate with host government investigations of security-related human rights issues if and when they arise and we will monitor the status of investigations and press for their proper resolution. IV. Waste Management During its visits, the Panel has commented on the “extraordinary level of environmental degradation in Azerbaijan”, describing abandoned derricks, rusting oil platforms, and abundant oil slicks, both onshore, and offshore. The Panel accepts that while “BP cannot and should not be held responsible for the environmental degradation associated with previous environmental mismanagement, it must, at a minimum, ensure that it minimizes the negative impact of its project activities on the environment”, and recommends that “BP and BTC devote the necessary resources to finding a solution to the waste problems” it faces in Azerbaijan and Georgia. The development and implementation of a waste management strategy to EU standards for both Azerbaijan and Georgia has proved one of the most challenging aspects of the ACG and BTC projects, to which both BP and BTC continue to dedicate considerable resources. The magnitude of the challenge faced by the projects, and the difficulties involved in full compliance with the associated environmental and social commitments were underlined in June 2004, when the ACG Phase 1 Lender Group Independent Environmental Consultant Page 9 of 22
  10. 10. (IEC) opened a level III non-compliance relating to the management of non-hazardous waste at the Sangachal Terminal. In response, BP issued a competitive tender for the construction and operation of a non-hazardous waste landfill that would comply with EU Landfill Directive standards. The tender review is now complete, and an agreement has been awarded for construction at an existing waste site to the west of Sumgayit. As the new landfill is not expected to be operational until the fourth quarter of 2005, improvement works have also been performed at the existing waste site at Sumgayit to ensure that sufficient capacity is available for current ACG Project waste. These mitigating actions are expected to result in the rescinding of the level III non-compliance at the next IEC review. Non-hazardous waste from the BTC project in Azerbaijan is accumulated at the Central Waste Accumulation Area at the Kurdamir Camp, for disposal by incineration. After a level II non-compliance relating to incinerator emissions was opened by the IEC of the BTC Project Lender Group, BTC has upgraded the continuous emissions monitoring equipment attached to the incinerator. A further round of discontinuous monitoring is also planned at the incinerator in April 2005, and at that time ambient air quality will also be measured to validate the theoretical air dispersion model in use. Hazardous waste generated by the BTC Project in Azerbaijan that is not suitable for incineration, and all hazardous waste from the ACG Project is currently stored while work continues to identify an acceptable solution for final disposal. As part of this effort, BP has performed a technical and assurance assessment of the hazardous waste landfill site at Sumgayit in Azerbaijan, constructed as part of a World Bank project to remediate mercury- contaminated wastes from a local Chlor-Alkali factory. The site was assessed as meeting EU standards for hazardous waste landfills, and BP is now working to ensure that it is also operated in accordance with industry best practices, before it proceeds further. In Georgia, disposal of non-hazardous waste from the BTC project remains a substantial challenge. Until recently, waste generated by the pipeline contractor was incinerated at a unit brought into Georgia for this purpose. However, despite significant improvements that have been made to the incinerator, it still cannot be run in a manner compliant with EU standards, leading BTC to conclude that for the remaining span of the project, it would be more environmentally acceptable to dispose of such waste at a municipal site. The Ministry of the Environment in Georgia has granted approval for the use of the Iagludja dump site for the disposal of project waste in defined quantities, and in support of this decision BTC has developed a conditioning plan for the site which outlines the steps needed for improvement in the direction of compliance with EU standards. Recently, BP has expressed its willingness to facilitate the creation of the first non-hazardous landfill in Georgia to comply with EU Page 10 of 22
  11. 11. standards, and discussions with the Government of Georgia in this regard are ongoing. We anticipate that this facility will be ready in 2006/7. As in Azerbaijan, hazardous waste generated by the BTC project in Georgia is stored awaiting identification of an acceptable long-term disposal solution. One option under consideration is the construction of a hazardous waste management facility in Georgia to EU standards that would become available to other users once disposal of all remaining project waste is complete. BP has applied to the Georgian State Sanitation Supervisory Body for the permit required before the Environmental and Social Impact Assessment (ESIA) for the proposed waste management facility can be submitted, and the necessary public consultation begun. Offshore, BP’s strategy for the disposal of drill cuttings currently exceeds the requirements of the ACG Production Sharing Agreement, in that all non-water based mud cuttings, with the exception of those produced from the Chirag platform, are either re-injected, or taken ashore for disposal. Due to space and weight restrictions on the Chirag platform, it is not possible to capture all the synthetic-based mud cuttings for re-injection or shipment to shore. However, equipment upgrades have allowed for improvement in the separation of fluid from cuttings prior to discharge, and further opportunities to reduce impacts have been sought. As CDAP recommends, discharges to the sea of drill cuttings from the Chirag platform are now included within BP’s Environmental Monitoring Strategy, and results from the most recent survey are expected mid-2005. Once on-shore, cuttings are treated using one of the two methods for which approval has been received from the Azerbaijan Ministry of the Environment and Natural Resources (MENR). Disposal by indirect thermal desorption has been in use since February 2004, and BP is now working closely with the MENR regarding how waste streams from the desorption unit may effectively be re-used. Recently, the MENR has approved a second disposal method – bioremediation – for use at the waste site near Serenja village, close to the Sangachal Terminal. BP and BTC are meeting the waste management challenges faced by their projects in Azerbaijan and Georgia through innovation and investment. The common remedy – construction by BP of new, EU-compliant waste management facilities – will enable appropriate disposal of all types of project waste in the long term, and for the first time it will also enable those other companies in Azerbaijan and Georgia that wish to dispose of waste in an environmentally acceptable manner to do so, on commercial terms, using well-managed EU-compliant waste management facilities. Page 11 of 22
  12. 12. V. Regional Oil Spill Response The Panel has examined in detail the systems and controls that BP has in place to prevent oil spills from its platforms and pipelines, and also the plans that would be followed should an oil spill occur. BP uses worst case scenario modelling to understand and plan for the total impacts of oil spills, and one of the scenarios modelled – loss of well control, leading to a blow-out – led the Panel to request that BP and its Partners in AIOC explore whether there are “practical options to reduce the time it would take to halt the release of oil” that would ensue. BP is committed to ensuring that its wells are designed, drilled, completed, and maintained to high and consistent standards. Its approach to managing well control is focused on prevention through proper well design, operational procedures, and integrity of well control equipment. The wells are designed and constructed with substantial redundancy to manage well control events, and avoid the escalation that could ultimately lead to an uncontrolled blow-out. However, in the extremely unlikely event that a blow-out does occur, BP has the contracts, contingency plans, and defined resources in place to ensure that the appropriate response is made in a timely and efficient manner. The Panel also recommended that BP and AIOC work to ensure that a plan is developed that addresses the scenario of a trans-boundary oil spill, in which a spill within the territorial waters of one of the Caspian littoral states affects the territory of another. Development of a trans-boundary oil spill response plan requires the drafting and implementation of inter- governmental agreements, an activity in which BP, as a private actor, has a necessarily limited role. However, in a significant step in this direction, the EBRD has funded the development of the Azerbaijan National Oil Spill Contingency Plan by the Norwegian company Det Norske Veritas (DNV), and BP is following the progress made on this with representatives of the Azerbaijan government, and also with the UK and US embassies in Baku. BP and BTC are also supporting negotiations between the governments of Azerbaijan and Kazakhstan, with the aim that if the Sangachal Terminal and BTC pipeline is used for the transhipment of oil from Kazakh oil fields, then international HSE standards are incorporated into the international treaty that would be required, as the Panel recommends, in particular with respect to standards for Caspian shipping. The oil spill response plans developed by BTC for use in Azerbaijan and Turkey have been approved by the governments of both countries. Approval of the Georgian oil spill response plan is currently being sought from the Georgian government. These plans, which are Page 12 of 22
  13. 13. available from the Caspian Development and Export web site, were acknowledged in the independent Oil Spill Response Plans Final Expert Response as being “in accordance with conventional international practice and exceeding international best practices in a number of key areas”. BTC has also taken the unprecedented step of making public the Final Expert Response, a significant move towards greater transparency in this area. In Turkey, BTC has developed a specific oil spill response plan for the BTC terminal at Ceyhan, which is adjacent to the existing BOTAŞ terminal handling oil from the Iraq-Turkey pipeline. BTC is now actively encouraging BOTAŞ to use it as best practice within their existing terminal, as the Panel suggests. In January 2005, BTC completed construction of the first of its stand-alone oil spill response bases in Georgia, in the Tsalka region. Additional bases will be built in Tblisi, and also in the Kodiana region, and a community awareness programme regarding pipeline safety and oil spill response, which includes television info-mercials, billboard advertising, and regular public information meetings, is underway to ensure that the local government and citizens of Kodiana and Borjomi are appropriately consulted and involved, in fulfilment of a Panel recommendation in this area. This programme will intensify as the date for commencement of operations approaches. The Borjomi Information Centre is being used for as a venue for dissemination of a wide variety of project information covering such topics as route selection, construction activity, land compensation, and monitoring and security, as well as pipeline safety and public information relating to oil spill response. VI. Kodiana The eighteen kilometres between the Tskhratskaro and Kodiana Passes in Georgia are some of the more sensitive of the pipeline route. The route crosses the support zone of the Borjomi Kharagauli National Park, including areas of human population and activity, and also lies within the surface water catchment of the Borjomola River. The decision to route the BTC pipeline through this area was endorsed by the Government of Georgia and taken after an extensive evaluation of potential alternatives, in which a balance was struck between such criteria as impact on the surrounding area, successful reinstatement potential, wider environmental and social issues, geohazard and terrain assessment, constructability, long term integrity, and the need to minimise route length. However, routing options were also constrained by a decision of the Government of Georgia to reject, on security grounds, any pipeline route crossing the Akhalkalaki district, to the south of Borjomi. The desire of the Georgian Government to avoid this area, which contains military facilities of the Russian Federation, was not at the time made public, and so when the final routing decision was announced externally, this constraint was not explicitly referenced. Page 13 of 22
  14. 14. The Panel considered in depth the routing of this section of the pipeline, and while it has commented that “a greater effort by both BP and the Government to stress these political constraints publicly would have enhanced confidence in the route ultimately selected”, it also accepts that this route “would have been chosen even with a more fulsome debate over the options”. The Kodiana section of the pipeline route was further scrutinised when, in July 2004, the Government of Georgia notified BTC of a two-week suspension of construction on this section of the pipeline so that it might conduct its own evaluation of the particular security measures being put in place. The discussions that followed between BTC and the Government resulted in the construction of additional measures to protect the pipeline, and the signing of agreements - fully in keeping with the VPs -on a grant program for Georgia and on the provision of non-lethal security equipment, facilities and operations funding relating to pipeline security. The texts of these agreements have been made public, and BP and BTC regard the Grant Agreement, and its public disclosure, as a model for making commitments of this kind to a Government in a manner that is transparent and auditable. The first payment under the Grant Agreement has now been made, and Deloitte and Touche has been selected to audit the first quarterly report on project activity and expenditure, which is now expected from the Georgian Government. The Grant Agreement complements the other BP and BTC sustainable investment activities underway within the Borjomi region. The initial project of the Greater Borjomi Initiative, managed by GTZ as a pilot project under the RDI (as discussed above), has now been extended until June 2005. The goal of the initiative, to provide social and environmental benefits to the region through improved waste management, is being achieved through a two pronged approach of public awareness campaigns targeting the populations of Borjomi and Bakuriani that emphasise the importance of proper waste collection and disposal, backed by a program of clean-up works in the Borjomi region itself. Further projects under the Greater Borjomi Initiative are being discussed with GTZ. The BTC/SCP Community Investment Programme has also been operating in the region, supporting project-affected communities through capacity building activities. These have included the creation of numerous demonstration farms, which have since been able to provide supplies of potato seeds to other farms in the region; provision of training in grant proposal development, planning, and civil rights and responsibilities; and also community mobilisation through the formation of community-based organisations. Work has also taken place at Bakuriani under the Improved Schools Programme, to rehabilitate the school Page 14 of 22
  15. 15. building, provide improved heating equipment, and install solar power to improve the reliability of the school’s electricity supply. We have also opened an information office in Borjomi to offer local residents a single point of contact should they wish to raise concerns about the pipeline’s construction or operations. Implementation of the pipeline security agreement is also underway. The first annual payment into the pipeline security operating expenses fund has been made, and work is proceeding on temporary and permanent secondary containment measures, and the special relief tank required by the Georgian Ministry of the Environment, as the Panel mentions, to ensure that should an oil spill occur in the region, it is properly contained and mitigated. VII. BOTAŞ Performance In Azerbaijan and Georgia, BTC has a direct relationship with the contractors that it has chosen to construct the BTC pipeline, and its associated facilities. However, in Turkey, under the terms of the Lump Sum Turnkey Agreement (LSTK) the role of Managing Contractor is performed by BOTAŞ, the state-owned Turkish pipeline transportation company. According to this agreement, BOTAŞ, rather than BTC has responsibility for a wide variety of project activities, including land acquisition and compensation; contractor selection management and auditing; the design and construction of the pipeline, facilities, and the terminal at Ceyhan; and ensuring that the various standards and commitments made within the Environmental Impact Assessment (EIA) performed in Turkey are met. The Panel has expressed its concern on a number of occasions that the extra distance introduced by the LSTK between BTC and those contractors engaged in construction activity will reduce BTC’s ability to ensure that the commitments made within the EIA are honoured, and will increase the likelihood that corners may be cut on environmental, social, and technical standards in order that the project remain on schedule, and in budget. Indeed, the Panel has characterised the LSTK as presenting “BP with the most significant challenge it has in Turkey”. In its most recent report, however, the Panel highlights the “numerous reports of constructive teamwork between BTC and BOTAŞ” that it has received from both parties, and comments on the “effective working relations” that are developing between the leadership of BOTAŞ and BTC. BP has been treating its relationship with BOTAŞ in the spirit of a public and private partnership, and through this partnership, BP believes that it has already helped both BOTAŞ and the Turkish Government to “demonstrate to the EU and the international community that they are fully capable of hosting, and participating in investments that meet or exceed the most stringent international environmental, social, technical, and human rights standards”. Page 15 of 22
  16. 16. Regular Project Review Board meetings, introduced in January 2004, allow senior management of BP, BTC and BOTAŞ to meet together with the Turkish Minister of Energy and his delegation to discuss project progress and review performance. BTC was particularly pleased that the Panel has praised the quality of the reinstatement work that it witnessed along some sections of the pipeline route during its visit to Turkey in 2004. However, the Panel was concerned that due to pressures of time, the remaining reinstatement work may not be performed to a similarly high standard. The EIA commits BTC to full reinstatement along the Right of Way, and to fulfilling all the measures described within its reinstatement plan, and so BTC will emphasise the quality of the reinstatement required when it inspects project areas as part of the provisional acceptance process, prior to contractor demobilisation, and so ensure that BOTAŞ performs any remedial work required as a condition of acceptance under Work Completion requirements, during the warranty period that follows. The quality of the reinstatement work performed is also monitored quarterly by the Project Lender Group IEC. Similarly, BTC has developed an Integrated Plan for reinstatement of those sections of the Eastern Anatolian Natural Gas Pipeline that run parallel to the BTC Right of Way. The Plan, based on detailed surveys performed in the summer of 2004, was submitted to the BTC Lender Group in December 2004. BTC has also made significant progress in resolving outstanding claims for compensation resulting from construction activity. All “Article 27” cases brought by BOTAŞ under the expedited process used for land entry when the land owner is deceased with many heirs, absent, or amicable agreement could not otherwise be reached have now been closed, except for those associated with minor route changes. As each of these cases was closed, a corresponding new case was opened under “Article 10”, through which the courts decide the amount of land compensation required, and determines the share of each shareholder. Closure of these, and other “Article 10” cases will necessarily follow the requirements and procedures of Turkish law. BOTAŞ and the Designated State Authority continue to provide logistical support for court activities, and at the end of March 2005 reported significant progress in closing out those cases that remain, with payments now made to 8,616 of the 9,312 affected private and customary land parcel owners. Compensation agreements have also been signed with 47 of the 48 fishermen affected by the reduced access to fishing areas in the vicinity of the Ceyhan terminal, with the amounts agreed placed into interest bearing bank accounts to which the fishermen can gain access at any time. In November 2004 and January 2005, Ankara University conducted surveys at BTC’s behest to monitor the impact of reduced access to the fishing areas. These surveys have shown that the compensation packages and Page 16 of 22
  17. 17. other mitigations such as local employment and procurement have increased household incomes by 40% on average, compared to pre-project levels. Where BTC project standards were not being met, project management have taken appropriate action. In its letter to Lord Browne in December 2004, the Panel raised its concerns about the length of open trench in Turkey, which ‘created safety risks for the local communities, imposed hardships on farmers and ranchers along the right of way’. The Panel hoped and expected that BTC management ‘continue to monitor this issue closely’. While the Panel has praised the progress made by BTC in 2004 to reduce the length of the various segments of open trench within Turkey to less than 20 kilometres, to meet obligations made under its financing arrangements, BTC has also committed to continue to monitor the length of open trench to ensure that these obligations are met for the remainder of construction. These efforts have been recognised in the recent lender IEC report, which acknowledged the response of the project to implement open trench protocols in all three Lots and the fixed installations. BP and BTC have also taken a wider role in encouraging BOTAŞ and the Turkish government to adopt the same range of standards and commitments made for the BTC pipeline when building those extensions to the Turkish domestic national gas supply system required to supply the BTC pump stations. Although the PT1 gas supply line is part of the Turkish distribution system, BP and BTC have encouraged both BOTAŞ and the government of Turkey to implement Resettlement Action Plan principles when acquiring the route that the gas supply line has taken. Following BTC’s recommendation to BOTAŞ, the University of Ankara conducted land valuation along the supply line route, identifying both formal and informal land users who were compensated by BOTAŞ, and consulted on land issues together with land teams from the Designated State Authority BP continues rigorously to comply with the Panel’s recommendations that “BP, through its leading role in BTC continue to use its leverage including (if necessary) stoppage of work, to ensure that BOTAŞ fulfils the commitments BP and BTC have made in the EIA”, and that “BP and BTC continue to work to ensure that BOTAŞ and its contractors remain fully aware of and committed to fulfilling their obligations under the various project management plans”. VIII. Decommissioning As the Panel observes, the best international practice with regard to the disposition of offshore facilities is in constant evolution, and alternative commercial uses for specific facilities that cannot presently be foreseen may have a considerable bearing on what will constitute the Page 17 of 22
  18. 18. most environmentally friendly option available, once all recoverable oil and gas reserves have been produced. The Panel recommends, and BP agrees that “all new off-shore facilities should be designed and constructed to make feasible their entire removal upon abandonment”. In line with BP policy, and also with the requirements of the ACG Production Sharing Agreement (PSA), BP ensures that the best practices and standards from the international petroleum industry are followed during the design of new offshore facilities. These include the 1992 OSPAR Convention on the protection of the Marine environment of the North East Atlantic and subsequent OSPAR Commission updates such as the OSPAR Decision 98/3 detailing a new regime for the decommissioning of disused offshore installations, as well as the 1989 International Maritime Organisation guidelines. When abandonment plans are developed, UK Department of Trade and Industry guidance notes will also be referenced. In line with the recommendations of the Panel, BP has set in motion the development of an abandonment cost estimate, for completion in 2005, some years before production from ACG is expected to reach the point at which the PSA requires an abandonment fund to be created. IX. Land Acquisition and Compensation Land acquisition for the pipeline corridor stretching 1760 kilometres between the Sangachal and Ceyhan terminals is an enormous and complex undertaking, which has directly affected an estimated 17,716 households, and is subject to the land ownership norms of three countries. BP is gratified that the Panel acknowledges the “thorough and equitable way” in which land acquisition has been approached, noting that land compensation is the “single most important tangible benefit many individuals will receive from both the BTC and SCP projects”. No households have been, or will be relocated as a consequence of the pipeline projects, but nevertheless, BTC has developed a Resettlement Action Plan (RAP) in compliance with World Bank Group guidelines. The RAP describes the compensation arrangements in place for land owners, farmers, herders, and other land users, and ensures that economic impact, for example for land improvements, or for lost crop production over the period of pipeline construction, are properly compensated, with the aim, as the World Bank guidelines describe, of “assisting project affected peoples in their efforts to improve their former living standards, income earning capacity and production levels”, or “at least to restore them”. A RAP fund was established to cover those cases where local law does not provide for compensation, such as where the projects impact on communally used resources, such as forests and village Page 18 of 22
  19. 19. grazing lands in Georgia and Turkey, and the case of the fishermen affected by reduced access to fishing areas close to the Ceyhan Marine Terminal. The effectiveness of the RAP is monitored externally by an independent three person expert panel (the “SRAP Expert Panel”), established in accordance with RAP procedures and also CDAP recommendations, to ensure that the plan is being complied with; to verify that the measures required to restore or enhance the quality of life of project affected people are being implemented, and to gauge their effectiveness; and to assess the extent to which the quality of life and livelihoods of affected communities have been restored. BP and BTC have also worked extensively during the land acquisition process with NGOs that specialise in land issues. In Georgia, the Association for Protection of Landowners’ Rights has been involved in the entire land acquisition process, while in Azerbaijan, the Centre for Legal and Economic Education has been similarly involved. In Turkey, the Rural and Urban Development Foundation (RUDF) has been monitoring the land acquisition process against RAP principles since September 2002. The Panel has commended BP and BTC for their work in land acquisition, stating that it is “impressed with the overall approach BP and BTC have taken and with the essential fairness of the BTC land acquisition process”. However, it has also made a number of recommendations regarding how the process could further be improved, and outstanding issues resolved. The Panel echoes the concerns of some NGOs that land agreements in Azerbaijan and Georgia were being entered into too quickly, leaving insufficient time for proper review of key documents by the land owners, or the NGOs that advise them. In Azerbaijan, concerns were also raised over use of the Latin script in the agreements, as although all official documents must be written in this script, some Azerbaijanis read the Cyrillic script only. BTC, in line with the Panel’s recommendations, has used its arrangements with the APLR and the CLEE to enable the relevant documents to be reviewed and amended if necessary, and also made available in the Cyrillic script where needed. The SRAP Expert Panel notes in August 2003 that in Azerbaijan, the small number of people who “reported difficulties in reading Latin script indicated that with assistance from family members, CLEE, or the joint land acquisition team, they had been able to understand the content”. Both the Panel and the SRAP Expert Panel consider the risk of corruption and extortion resulting from the size of compensation payments received by some affected individuals and communities. BTC has followed the CDAP Panel’s recommendation to work closely with local authorities and NGOs to try to reduce this risk, and is gratified to note that in its report Page 19 of 22
  20. 20. of July 2004, the SRAP Expert Panel regards the “low incidence of attempts to extort unofficial payments from project affected people [as] a notable achievement of the Project”. The mechanism for distribution of compensation for communal grazing grounds proved to be a source of division amongst affected communities in Georgia, prompting BTC, at the Panel’s suggestion, and also in response to concerns expressed by the SRAP Expert Panel in its August 2003 report, to extend its agreement with the APLR to enable it to advise on this issue. Land acquisition in Georgia is now complete, except for the resolution of some remaining issues around the Georgian government’s annulment of land registration in Tabatskuri village. After construction finishes, BP, BTC, and SCP have pledged that the land acquired, except that needed for above ground facilities and access roads, will be returned to the use of the original land owners, subject to minor restrictions needed for pipeline safety. In Azerbaijan, this can be accomplished through the use of leases. In Georgia, however, no similar legal framework exists that would allow BTC to lease and return the land to individual owners, subject to the required conditions of use. Consequently, BTC has purchased outright all property along the Georgian section of the pipeline Right of Way, and is now working with the Georgian authorities, as both CDAP and the SRAP Expert Panel recommend, to determine the most effective way of returning land use, while ensuring that the rights needed to operate the pipeline in a safe and effective manner are retained. In Turkey, BTC is working with BOTAŞ and the Designated State Authority to ensure that an effective strategy is in place for the return of use rights to former land owners, and that the signing of land exit protocols will be accompanied by an awareness campaign regarding land usage restrictions upon both the temporary and permanent pipeline corridors, and their surroundings. BTC and BP are also aware of concerns expressed by some international NGOs, and echoed by CDAP, regarding the impact of land acquisition, and other project activities on vulnerable groups in Turkey, especially on Kurdish speakers and women. The Panel has recommended that “BP work with BOTAŞ and the other Project Participants to ensure that ongoing consultations, grievance procedures, and land acquisition activities remain open and accessible to Kurdish speakers and women along the pipeline corridor”. A core principle of the BTC project is that all communities along the pipeline route are treated the same, regardless of ethnicity, language, religion or gender. The Environmental Impact Assessment conducted in Turkey and the RAP specify additional mechanisms such as separate meetings for women, employing female community liaison officers and Kurdish speaking personnel (although surveys and consultation meetings have confirmed that Turkish is spoken and understood by all affected people) to ensure these groups are not marginalized. The SRAP Page 20 of 22
  21. 21. Expert Panel notes in February 2004 that the compensation measures outlined in the RAP “have been adequately implemented, mostly through the RAP Fund”. In Georgia, BTC has taken a number of actions based on recommendations of the SRAP Expert Panel regarding the effectiveness of community liaison, which relate to the subsequent CDAP recommendation to “explore ways to strengthen the CLO team, particularly in Georgia”. Actions taken since January 2004 have included doubling the size of the CLO team in Georgia to eight members, adding two experienced expatriate field social supervisors; instituting regular field coordination meetings; increasing coordination with the land team to improve resolution of land related grievances; and regularly reviewing the Construction Contractor’s grievance logs, amongst others. To address the Panel’s recommendation that “the CLOs remain on staff well into the operations phase”, BP and BTC are undertaking a thorough internal review of their community relationships, including the very valuable role that CLOs have to play, as part of a wider program of work within BP that examines engagement with civil society along the entire length of the pipeline route. This work, which also considers those stakeholder engagement mechanisms used by BP elsewhere in the world, will lead to an approach to relationship building with civil society that ensures transparency for the public, and is appropriate to countries with developing non-governmental sectors. It is expected to be complete in the second quarter of 2005. In December 2004, the Panel highlighted the number of complaints received in Georgia by the IFC Compliance Advisor/Ombudsman (CAO), and recommended that BP and BTC “consider structural changes to the grievance mechanism” used to resolve land and constructions complaints arising from the communities. While BTC acknowledges that there have been a comparatively high (compared to Azerbaijan and Turkey) number of complaints raised with the ombudsman, it does not believe that the number of complaints is a consequence of the merits of the grievance mechanism itself. Nevertheless it continues to seek out opportunities for improvement, and has recently had a number of detailed discussions with the ombudsman’s office. The July 2004 SRAP report notes that the project’s response to grievances has improved significantly over the year, as a result of the changes to team and management practices. Since that time, closure of grievances has further improved. As of the end of November 2004, over 65% of the land grievances have been closed (up from 25% in July 2004) and over 85% of the construction related grievances have been closed (up from 50% in July 2004). In addition, BTC is reviewing grievances that have been rejected by the Construction Contractor and, in a number of cases, finding in favour of the complainant. On November 2nd 2004, after extensive discussion around the merits of the existing grievance system, the CAO and the IFC agreed with BTC that a higher-level appellate system Page 21 of 22
  22. 22. is not appropriate or necessary at this stage, and that no further evaluation of this alternative was needed until the SRAP Panel review of progress in resolving grievances is complete, in early 2005. We will revisit the CAO’s recommendation at that time. X. Conclusion BP and BTC greatly appreciate the work undertaken by the Panel, and thank its members both for their diligent and considered approach and for their recommendations, suggestions and views. That so many of the Panel’s recommendations have now been implemented underscores the value and importance attached to them within both companies. BP and BTC share the Panel’s vision that the Caspian projects have the opportunity to “create a model for investments in extractive industries that will leave a lasting positive legacy in the host countries” and believe that the work of the Panel is a valuable addition to the unprecedented – and continuing – level of consultation, public scrutiny and engagement which has characterised these projects to date. Both companies would like to take this opportunity to thank the Panel’s secretariat and the individuals and organisations who have offered their own opinions, insights and expertise directly to the Panel, and look forward to working with all those who have an interest in ensuring the successful completion of the BTC pipeline and other Caspian projects, during 2005 and beyond. Progress in these matters, and in the other areas on which the Panel has commented will be presented in the next BP Progress Report, to be released in 2006. Page 22 of 22