CASPIAN DEVELOPMENT ADVISORY PANEL REPORT ON TURKEY AND PROJECT-RELATED SECURITY (DECEMBER 2003)

Transcription

1 CASPIAN DEVELOPMENT ADVISORY PANEL REPORT ON TURKEY AND PROJECT-RELATED SECURITY AND HUMAN RIGHTS ISSUES IN AZERBAIJAN, GEORGIA, AND TURKEY (DECEMBER 2003) DC: Copyright 2003 Caspian Development Advisory Panel

2 TABLE OF CONTENTS I. Consolidated Executive Summary of Panel s Work in TURKEY II. Introduction...20 A. The Panel s Work...21 B. The Institutional Structure in Turkey...24 III. Economic Impact...28 A. Anticipated Revenue Inflow and Management...30 B. Procurement, Employment, and SMEs Procurement Employment...35 IV. Environmental Impact...38 A. Reduction in Tanker Traffic in the Turkish Straits...40 B. Pipeline Routing and Related Issues Erzurum Plain Posof Wildlife Protection Area Sarikamis Forest Gas Supply Lines for Pump Stations...45 C. Reinstatement...47 D. Issues at the Ceyhan Terminal Site Selection Cumulative Impact in Gulf of Iskenderun Oil Spill Response Double-Hull Tankers Discharge of Ballast Water Single Point Mooring System...55 V. Social Impact...57 A. Land Acquisition and Its Challenges Overview of the Land Acquisition Process BOTAS s Responsibility for Land Acquisition The Complexity of Land Ownership in Turkey i -

3 B. The Resettlement Action Plan Initial Assessment Disclosure and Consultation Land Acquisition and Compensation Monitoring Procedures...68 C. Impact on Minorities...69 D. Cultural Heritage Management...71 VI. Investment Programs...73 A. CIP...77 B. EIP...79 VII. The Role of BOTAS...81 SECURITY AND HUMAN RIGHTS VIII. Security and Human Rights in Azerbaijan, Georgia, and Turkey...87 A. BP s Human Rights Commitment and the Regional Context...89 B. Legal Framework...94 C. Operational Framework Security Plans and Protocols Host Country Coordination Risk Assessment Physical Protections Guards and Security Forces Hiring and Training of Project Personnel Sharing Information with State Security Forces D. Implementation and Coordination of Human Rights Monitoring APPENDICES APPENDIX A Key Security and Human Rights Elements of the Projects Legal Framework APPENDIX B List of Meetings and Consultations APPENDIX C Panel Policy Recommendations APPENDIX D Terms of Reference APPENDIX E Biographies of Panel Members ii -

4 LIST OF ABBREVIATIONS ACG ATCA BTC BTC pipeline CCPs CDAP CHMP CIP CIPPs EBRD ECHR EIA EIP EMMP ESIA EU GTZ HGA IBC IFC IGA IMO Joint Statement KPIs LSTK NGO Panel Azeri-Chirag-Gunashli offshore oil field Alien Tort Claims Act BTC Pipeline Company Baku-Tbilisi-Ceyhan oil pipeline Contractor Control Plans Caspian Development Advisory Panel Cultural Heritage Management Plan Community Investment Program Contractor Implementation Plans and Procedures European Bank for Reconstruction and Development European Court of Human Rights Environmental Impact Assessment Environmental Investment Program Environmental Management and Monitoring Plan Environmental and Social Impact Assessments European Union Deutsche Gesellschaft für Technische Zusammenarbeit GmbH Host Government Agreement International Blue Crescent Foundation International Finance Corporation Intergovernmental Agreement International Maritime Organization Joint Statement on the Baku-Tbilisi-Ceyhan Pipeline Project Key Performance Indicators Lump Sum Turnkey Agreement Non-governmental organization Caspian Development Advisory Panel - iii -

5 Partners Project Projects Project Participants PSA RAP RDI RFP RUDF SCP Security Protocol SMEs SMMP SPM SSC SSPS SÜRKAL TUDAV Voluntary Principles Collective reference to companies participating in the BTC and/or SCP consortia Baku-Tbilisi-Ceyhan pipeline Baku-Tbilisi-Ceyhan pipeline and South Caucasus pipeline Collective reference to companies participating in the BTC and/or SCP consortia Production Sharing Agreement Resettlement Action Plan Regional Development Initiative Request for Proposals Rural Urban Development Foundation South Caucasus Pipeline Protocol Relating to the Provision of Security for the East- West Energy Corridor small- and medium-size enterprises Social Management and Monitoring Plan Single Point Mooring System Supreme Security Committee Special State Protection Service The Sustainable Rural and Urban Development Society Turkish Marine Institute Voluntary Principles on Security and Human Rights BP established the Caspian Development Advisory Panel (CDAP) as an independent external panel as part of its plan to ensure that the Baku-Tbilisi-Ceyhan (BTC) pipeline is a world class model project. CDAP's terms of reference include the provision of objective advice to the Company on the economic, social, and environmental impacts of the pipeline project in Azerbaijan, Georgia, and Turkey. The views, opinions, and recommendations expressed both in CDAP's Interim Report and in this Report are solely those of CDAP alone and are not necessarily shared by BP or its Partners in the pipeline project. - iv -

6 Consolidated Executive Summary of Panel s Work in 2003 Section I. Consolidated Executive Summary of Panel s Work in 2003

7 Consolidated Executive Summary of Panel s Work in 2003 This is the second report of the Caspian Development Advisory Panel (CDAP or the Panel), which was commissioned by Lord John 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. The Panel s Interim Report, which focused on Azerbaijan and Georgia, was released in August 2003 and can be found at together with BP s response. This Consolidated Executive Summary provides an overview of the Panel's key findings and recommendations from its Interim Report on Azerbaijan and Georgia and from this Report on Turkey and project-related security and human rights issues in Azerbaijan, Georgia, Turkey. In a number of areas, this Consolidated Executive Summary also notes where progress has already been made against earlier recommendations. 1 Although the Panel is funded by BP, the company has honored its commitment to give the Panel complete independence. The members of the Panel, which was established with a three-year mandate, include Jan Leschly (chair), Stuart Eizenstat, Jim MacNeill, and Mohamed Sahnoun. 2 In its eleven months of work, the Panel has held meetings with government officials, non-governmental organizations (NGOs), think tanks, academics, and other experts in London, 1 The recommendations from the Panel s Interim Report, along with its recommendations in this Report, are summarized in Appendix C. 2 Biographies of each of the Panel members are included in Appendix E. 1

8 Consolidated Executive Summary of Panel s Work in 2003 Washington, D.C., Azerbaijan, Georgia, and Turkey. The Panel visited Azerbaijan and Georgia in March 2003 and Turkey in September BP is the lead investor in two upstream facilities to develop oil and gas resources in the Caspian Sea as well as in two pipelines to export gas and oil to world markets through Turkey (together the Projects). Specifically, BP and its Partners are developing the Azeri- Chirag-Gunashli (ACG) oilfield and the Shah Deniz gas field off the Azerbaijan coast. In addition, BP and its Partners are constructing the Baku-Tbilisi-Ceyhan (BTC) pipeline to transport the oil developed at ACG to the Mediterranean port of Ceyhan and the South Caucasus Pipeline (SCP) to transport the gas developed at Shah Deniz from Baku to the Turkish border and national distribution system. 3 In the Panel s view, the development of the ACG and Shah Deniz fields, along with the construction of the BTC and SCP pipelines, are projects of immense strategic significance, both for the host countries and for the world at large. For Azerbaijan and Georgia, the development of Caspian energy resources represents an opportunity to diversify their supply sources, to accelerate economic development, and to reinforce nascent democratic institutions. For Turkey, the Project provides access to an important and significant supply of natural gas and establishes that country as the gateway to an important new East-West energy corridor. In addition, the pipeline routing allows for the export of hydrocarbons through Turkey directly to 3 The companies participating in the BTC and/or SCP consortia are referred to collectively in this Report as Project Participants or Partners. 2

9 Consolidated Executive Summary of Panel s Work in 2003 the Mediterranean Sea, slowing the rate of growth of tanker traffic through the economically vital and environmentally sensitive Turkish Straits. In its Interim Report, the Panel highlighted the historic opportunities presented by the Projects for the Azerbaijani and Georgian economies, but also highlighted certain risks to those countries economies. In particular, oil and gas wealth can be a development curse if revenues are coupled with (i) weak or underdeveloped governance structures, (ii) a lack of transparency in government functions, (iii) underdeveloped civil societies, and (iv) broad economic needs. For such countries, energy wealth has the potential to inhibit rather than increase growth and development. Azerbaijan displays a number of the conditions that frequently are associated with the oil and gas curse, and Georgia faces similar risks. Indeed, in making the transition to market economies both countries share certain broader, related challenges in attaining the potential economic benefits from the BP-led Caspian Projects. The Project will have a proportionately smaller impact on the Turkish economy than on the Azerbaijani and Georgian economies. Nevertheless, treasury revenues from transit and other Project-related fees from BTC for Turkey are expected to be significant over the lifetime of the Project. The Panel also notes the potential incongruity of more than one million barrels of oil and an equally significant amount of natural gas passing every day through or near villages and towns along the pipeline corridor where some houses have no heat or electricity. In the Panel s view, such a dichotomy would be neither healthy nor sustainable over the long term. If the host countries do not manage the anticipated economic gains for the benefit of their 3

10 Consolidated Executive Summary of Panel s Work in 2003 populations, BP and its Partners could be exposed to criticism, warranted or not, for having failed to help the region capitalize on a historic opportunity while exporting resources and related profits for the benefit of the Project Participants and consumers in industrialized nations. The Panel fully recognizes that BP and virtually all of its Partners are privatesector actors and that many of the benefits that are expected to flow from development of Caspian oil and gas can only be secured through sovereign action by the governments of the host countries. At the same time, the Projects will inevitably have a defining impact on the economic and social development of the region, and BP and its Partners have appropriately recognized that they are and will remain central actors in that process over the life of the Projects. In the Panel s view, BP and its Partners have the opportunity and the obligation to contribute positively to the development of the region as a whole and to the communities along the pipeline corridor. A positive contribution by BP is even more important given the recent political unrest in Azerbaijan and Georgia. More specifically, it is the Panel s view that the Caspian Projects provide BP with an opportunity to develop a new model or template for large-scale, extractiveindustry investments by major, multinational enterprises in developing and transition countries. In its two reports, the Panel offers a range of recommendations that it hopes will assist BP in achieving this goal. This Executive Summary highlights and summarizes nine broad areas that, in the Panel s view, merit special consideration and attention. For example, with respect to Project activities in Turkey and security and human rights issues across all three host states, the Panel recommends in this Report that: 4

11 Consolidated Executive Summary of Panel s Work in 2003 BP and BTC pursue a holistic, integrated, and regional approach for their supplemental investment programs in the region and commit to expanding funding for and extending the programs through the Projects lifetime; BP and BTC fund, through the Environmental Investment Program, a study of the cumulative impact of all of the commercial activities in the Gulf of Iskenderun on the coastal and marine environments and on those who rely on the Gulf for their living; BP, as BTC s largest shareholder, urge other BTC shareholder companies to adopt BP s policy of only utilizing double-hull tankers to load and transit crude oil at Ceyhan by January 1, 2008, and encourage Turkey to adopt EU standards for transit of crude oil; BP, as the largest shareholder in BTC, use all of its leverage, including stopping work on the Project if necessary, to ensure that BOTAS fulfills the commitments BP and BTC have made for the Project; and BP, building on its reputation as a leader in the promotion of human rights objectives, establish a mechanism for implementing, coordinating, and monitoring human rights commitments related to the Projects. 1. Encourage Sustainable Development via Creation of the Caspian Development Fund In both of its Reports, the Panel discusses and offers a number of recommendations for sustainable investment in the region through support by BP and others for initiatives above and beyond the Projects. BP has taken and should continue to take concrete steps to ensure that the benefits from the more than US$20 billion invested in the Projects are shared widely and that average citizens in Azerbaijan, Georgia, and Turkey, particularly along the pipeline routes, are able to see visible improvements in their lives as a result of the Projects. If BP plays a role, together with the governments of the three host countries, in producing such benefits, it will truly have developed a new model for large-scale, extractive industry investments in developing and transition countries. 5

12 Consolidated Executive Summary of Panel s Work in 2003 BP should be commended for launching three separate investment programs in which it and its Partners will invest tens of millions of dollars in community, environmental, and social projects over the next few years. In addition, the EBRD announced recently that it would cooperate with BP and its Partners to develop a longer-term initiative, which might include other development agencies and/or NGOs, to be known as the Regional Development Initiative (RDI). The RDI will focus on the creation of long-term jobs and sustainable economic development after pipeline construction is complete. According to the EBRD s recent announcement, the EBRD and BP have each earmarked up to US$25 million in grants and loans for the initiative; other members of the BTC consortium are expected to join with target funding overall of around US$100 million. In its Regional Review, BP articulated a rationale for such investments, and BP and its Partners have already funded important projects through their Community Investment Program and Environmental Investment Program. The Community Investment Program s grants, for example, seek to enhance community mobilization, strengthen healthcare, and expand microfinance in Azerbaijan and Georgia. In Turkey, the Community and Environmental Investment Programs seek to promote agriculture, develop entrepreneurship, empower disadvantaged groups (e.g., women), build quick impact projects, and promote the physical protection of various environmentally sensitive habitats and species. These programs are important and should have a positive impact in the region. In its Interim Report, the Panel recommended that BP significantly expand the funding, scope, and time horizon of its supplemental investments in the region. The Panel, 6

13 Consolidated Executive Summary of Panel s Work in 2003 recognizing the need for an integrated, holistic, and regional approach, recommended that BP create a vehicle that combines BP s community, social, and environmental investment funds going forward. The Panel also recommended that BP encourage other private sector entities and public development agencies to contribute to such an initiative, which might take the form of a Caspian Development Fund. Contributions by other parties would ensure that the Caspian Development Fund enjoys broad-based support and leverages the resources and skills of development agencies active in the region. The Caspian Development Fund could operate as a vehicle to oversee all investments by BP in sustainable development in the three host countries and serve as a repository for other donations and as a facilitator of public-private partnerships. Following its site visit to Turkey, the Panel believes more strongly than ever that the approach it outlined in its Interim Report could help maximize BP s positive impact in the region and help enable BP to create a new model for large-scale, extractive industry investments in developing and transition countries. In its Interim Report, the Panel recommended that BP announce a clear commitment to investing in sustainable development in the Caspian region as a whole; that it extend this commitment beyond the construction period to the full lifespan of the Caspian Projects; and that BP identify a secure, dedicated, long-term funding stream based, for example, on the revenue generated per unit of oil and gas throughput and/or production over the life of the Projects sufficient to meet this commitment and to make a lasting impact on the region. The Panel further recommended that BP try to leverage its investment by partnerships with other international development institutions active in the region. The Panel also 7

14 Consolidated Executive Summary of Panel s Work in 2003 recommended that BP structure its investment in sustainable development with a view towards building the infrastructure both physical and human that will sustain foreign direct investment and domestic economic growth over the long term. In addition, the Panel recommended that the Caspian Development Fund prioritize and focus on sectors and skill sets that could produce the greatest sustainable impact. These areas include agriculture and tourism, which, according to a number of experts, are the non-energy related economic sectors most likely to produce economic growth in Azerbaijan and Georgia, and policy reforms in the domestic energy and banking sectors. The Panel also recommended that the Caspian Development Fund target projects that will expand access to education, strengthen civil society, and enhance opportunities for and the capacity of small-and medium-size enterprises in Azerbaijan and Georgia. These broad recommendations apply to Turkey as well, and the Panel further recommends that supplemental investment in Turkey continue to prioritize social goals such as health and education, particularly for women. The recently announced RDI addresses a number of the Panel s recommendations with respect to supplemental investment, including the clarification of BP s commitment to fund sustainable development initiatives beyond the construction phase. The Panel awaits further details on the RDI and will comment on the initiative in its next Report. 2. Comply with Project Standards In Turkey The 1,076 kilometers of the BTC pipeline in Turkey will be designed and constructed by BOTAS, the state-owned Turkish pipeline construction company, pursuant to the Host Government Agreement and a US$1.3 billion Lump Sum Turnkey (LSTK) Agreement 8

15 Consolidated Executive Summary of Panel s Work in 2003 between BTC and BOTAS and guaranteed by the government of Turkey. Whereas in Azerbaijan and Georgia, BP and BTC are directly hiring and supervising contractors handling the construction, BTC is one step removed in Turkey, with BOTAS serving as Managing Contractor. This arrangement, coupled with a weak but evolving environmental and social compliance culture in BOTAS and its contractors, raises questions for the Panel about whether the various environmental and social commitments made in the Environmental Impact Assessment (EIA) and health and safety commitments made in other project documents will be met. In particular, the Panel heard concerns that BOTAS and its contractors might feel pressure to cut corners on environmental, social, and technical standards to remain on schedule and/or under budget vis-àvis the LSTK Agreement and that BP and BTC personnel lacked the authority, short of stopping work or exercising other severe contract remedies, to ensure that BOTAS and its contractors meet BTC s EIA commitments. The Panel recommends that BP and BTC work to ensure that BOTAS and its contractors remain fully aware of and committed to fulfilling their obligations under the various Project management plans. The Panel also encourages BP, through its leading role in BTC, to use all of its leverage, including stoppage of work, if necessary, to ensure that BOTAS fulfills the commitments BP, BTC and BOTAS have made in the EIAs. 3. Clarify the Governing Legal Regime In its Interim Report, the Panel discussed the legal regime that BP and its Partners in BTC and SCP had created with the three host governments to govern key standards by which the pipelines are to be constructed and operated. This legal regime was established to provide greater certainty for the investment by BP and its Partners given the stage of development of 9

16 Consolidated Executive Summary of Panel s Work in 2003 various legal institutions in the host countries, particularly in Azerbaijan and Georgia. Nevertheless, the governing legal regime has caused some controversy, particularly in the NGO community. The Panel recommended in its Interim Report that BP work with the host governments to clarify a number of critical issues in the legal regime. These included (i) the extent to which host governments and third parties have access to local courts or local administrative remedies to enforce environmental, health, safety, and other standards on Projectrelated activities; (ii) the environmental, health, and safety standards that currently govern Project-related activities, recognizing that the Projects have adopted a dynamic benchmark of international and European Union (EU) practice; and (iii) how and by whom the environmental, health and safety standards that will govern Project-related activities going forward are to be determined. In September 2003, after the Panel s Interim Report was issued, BTC issued the Citizen s Guide to the BTC Project Agreements and the Human Rights Undertaking, both of which clarify BTC s interpretation of certain aspects of the Projects legal framework. The Panel commends BTC for issuing these documents, which are consistent with key recommendations in the Panel s Interim Report on Azerbaijan and Georgia. The Citizen s Guide provides among other things a plain-language summary of the IGA and HGAs, which the Panel recommended in its Interim Report as a means of clarifying particularly complex aspects of the Projects legal framework. The Human Rights Undertaking, which is a legally binding unilateral deed under English law and can only be modified or revoked with the express consent of the beneficiaries (the governments of Azerbaijan, Georgia, and Turkey), addresses concerns 10

17 Consolidated Executive Summary of Panel s Work in 2003 expressed in the Panel s Interim Report about the possible effects of the Projects legal regime in the area of human rights. Notably, through the Human Rights Undertaking, BTC confirmed that the HGAs do not limit a host government s ability to regulate the human rights, health, safety, and environmental aspects of the Projects in accord with the standards agreed for the Projects, including international labor and human rights treaties to which a host government is a party. BTC also pledged in the Human Rights Undertaking that it will not exercise any rights it may have under the HGAs to seek compensation for actions required by a host government to fulfill its obligations under international human rights, environmental, and other treaties to which it is a party. The Panel recommends that BP and BTC (i) build on the publication of the Human Rights Undertaking by more broadly distributing the document in the host countries in local languages and (ii) remain engaged in discussions with the NGO community on longer-term improvements in the human rights protections that could be included in the legal regime for future projects. It is the Panel s understanding that BTC, as a signatory to the Human Rights Undertaking, will continue to be bound by the terms of the Human Rights Undertaking, a unilateral deed under English law, regardless of any shifts in ownership within BTC, including when and if SOCAR assumes majority ownership of BTC shares. Notwithstanding the Panel s understanding of BTC s obligations under the unilateral deed, a number of NGOs have raised concerns with and asked questions to the Panel about whether the Human Rights Undertaking will bind BTC even when SOCAR increases its proportional ownership of BTC. The Panel recommends that BP and BTC confirm in writing the Panel s understanding that BTC will 11

18 Consolidated Executive Summary of Panel s Work in 2003 continue to be bound by the Human Rights Undertaking in the future regardless of changes in relative ownership stakes among the shareholders within BTC. 4. Protect Human Rights In Section VIII of this Report, the Panel discusses and offers detailed recommendations to BP on ways that BP and BTC can better protect the human rights of the people affected by the Projects, particularly recognizing that Azerbaijan, Georgia, and Turkey have each experienced internal or external conflict in recent years. BP has made important commitments to support human rights in the region both in various project agreements with the host governments and the recently announced Human Rights Undertaking. In the Panel s view, however, the poor human right records of the host governments security and military forces create a significant reputational risk for BP and BTC, in the event that the governments are unwilling or unable to operationalize the robust human rights protections that have been established in the Projects legal framework. To help ensure that the human rights of those affected by the Projects are protected, the Panel recommends that BP, BTC, and the Project Participants accelerate efforts to operationalize the planned arrangements for the Projects security and the protection of human rights and that, to the extent publication of these documents will not compromise the safety of personnel and security of facilities, they make these more detailed security arrangements transparent and accessible to the public. In addition, the Panel recommends that BP and its Partners (i) create an independent ombudsman s office in each country for the Projects, which would be responsible, subject to local law, for hearing and investigating complaints about 12

19 Consolidated Executive Summary of Panel s Work in 2003 alleged human right violations related to the Projects, and (ii) establish a human rights coordinator or similar office that would serve as the Projects liaison with all interested parties and report periodically on the results of the Projects monitoring efforts. 5. Improve Transparency and the Free Exchange of Ideas It is the Panel s view that BP can have an important and positive impact on improving transparency and expanding the free exchange of ideas in the countries in which it has invested. In addition to BP s funding and supporting local NGOs, the Panel offered a number of recommendations in its Interim Report on publishing data on revenues that will accrue from the Projects to the governments of Azerbaijan and Georgia. Those recommendations are extended to Turkey in this Report. The Panel also recommended a number of broader initiatives BP might undertake to help the governments of Azerbaijan and Georgia link revenue management to poverty reduction and other development objectives. In the Panel s view, the greater the transparency with which BP and its Partners inform the public about the Project-related revenues that will accrue to the host governments, the more accountable the governments will be about the expenditure of such funds. Transparency will also enhance the dialogue and debate about the appropriate future uses of those revenues. The Panel commends BP s decision as operator to publish estimates of various Project-related payments to the host governments, as well as the decision to publish, including in local languages, the Production Sharing Agreements, Host Government Agreements, and the Intergovernmental Agreement that govern all or part of the Projects. The Panel recommends that BP take the next step with the publish what you pay principle by preparing and making 13

20 Consolidated Executive Summary of Panel s Work in 2003 publicly available, in English and local languages, detailed and easily understood annual statements of (i) the specific payments, by category and amount, that are made to the host governments and their various agencies, and (ii) the overall estimated earnings, again by category and amount, that the Projects generate for the host governments and their various agencies, including revenue from the sale of the state s share of oil and gas, transit fees, grants, taxes and other receipts. Publishing detailed and easily understood annual statements of the payments and earnings from the Projects would be a major step for BP and its Partners toward creating a model for large-scale, extractive industry investments in developing countries. Publication of this information would reinforce the broader, UK-US led Extractive Industries Transparency Initiative that BP has publicly supported and the government of Azerbaijan has indicated an intention to join. This Initiative has urged companies operating in the extractive industries and governments hosting such investments to be more open about the financial elements of such projects, including through regular publication of project payments and revenues in a standardized format. 6. Route Considerations; Expand Environmental Monitoring Activities In its Interim Report, the Panel recommended a number of external monitoring activities in the Borjomi and other regions where controversy exists surrounding the routing of the pipeline. It is the Panel s view that there were shortcomings in the process for selecting the ten-kilometer corridor of interest in Georgia. In light of its concerns about the security of certain routes, the government of Georgia took certain routes off of the table, as noted in the April 2002 BTC Project Environmental and Social Impact Assessment (ESIA) Disclosure document. 14

21 Consolidated Executive Summary of Panel s Work in 2003 Neither BP nor the Panel is in a position to evaluate the security assessment made by the government of Georgia. In the Panel s view, however, the impression was created that the BTC pipeline corridor was routed primarily on the basis of geotechnical, environmental, and social criteria when, in fact, security considerations appear to have been a principal factor driving the routing decision. If the overriding security constraints on corridor routing are accepted, in the Panel s view it is likely that the route that was ultimately selected would have been chosen even with a more fulsome debate over the options. BP and its Partners have pledged to implement a number of important mitigation and oil spill prevention mechanisms in the Borjomi region to prevent environmental damage in the unlikely event of an oil spill. The Panel recommended in its Interim Report that BP publish and broadly communicate the mitigation measures it plans to put in place and seek input from the community, the Georgia Academy of Sciences, and other experts on additional mitigation initiatives that may be appropriate. In addition, the Panel recommended in its Interim Report that BP support the creation of a community monitoring mechanism to track the potential effects of the pipeline in the Borjomi region. The monitoring panel presumably should consist of both experts and lay persons from Borjomi and other regions, including Members of the Georgia Academy of Sciences. The Panel also recommended that BP involve local government and citizens in its oil spill response plan and develop a program to train and equip the local community in Borjomi to respond to a potential oil spill. 15

22 Consolidated Executive Summary of Panel s Work in 2003 The Panel is satisfied with the process through which BP and BTC identified the route corridor in Turkey and is unaware of route-related controversies in Turkey as significant as those that exist in Georgia. 7. Other Environmental Issues In addition to routing issues, the Panel extensively reviewed BP and BTC s plans to minimize the Projects impact on the environment and mitigate environmental consequences associated with the construction and operation of the Projects. The Panel s overall impression is that BP has made a serious and concerted effort to mitigate environmental damage associated with the Projects. In addition, in the ESIAs for Azerbaijan and Georgia and the EIA for Turkey, BP and BTC outlined in detail the evaluation of alternatives, mitigation plans, and environmental risk assessments for the Projects. The Panel offers a number of recommendations to BP on ways BP and BTC can further enhance environmental protection in Azerbaijan, Georgia, and Turkey. For example, as part of its ESIA and related monitoring processes, BTC is collecting a significant amount of baseline environmental data, including data related to the Caspian Sea. The Panel recommended in its Interim Report that BP and its Partners publish the baseline environmental and scientific data they have collected to the relevant technical communities and the public at large. Publication of such data will expand scientific knowledge of the environment in the region. The Panel in its Interim Report also reviewed the Project Participants plans to decommission the oil platforms, terminal facilities, pump stations, and pipelines. Notwithstanding the fact that ownership of the Projects will ultimately transfer to SOCAR, BP will itself be judged by whether 16

23 Consolidated Executive Summary of Panel s Work in 2003 the facilities are decommissioned, even if ownership has meanwhile passed to a third party. The Panel recommended that when ownership of the various Project facilities change hands, BP should do everything possible, including contractually binding SOCAR, to ensure that the ultimate owner properly decommissions the facilities. The Panel also comments on and offers recommendations to BP in this Report related to the terminal at Ceyhan. The Panel recommends that BP fund, through the Environmental Investment Program, a study of the cumulative impact of all of the commercial activities in the Gulf of Iskenderun on the coastal and marine environment and on the livelihoods of those directly dependent on the Gulf for their living. In addition, the Panel discusses at some length the risks associated with the transport of crude oil in single-hull tankers and notes that the EU has accelerated its phase-out of single-hull tankers from transporting crude oil to and from ports in the EU and from anchoring within the jurisdiction of EU Member States. The Panel recommends that BP, as BTC s largest shareholder, urge other BTC shareholders to adopt BP s policy of only utilizing double-hull tankers to load and transit crude oil at Ceyhan by January 1, At a minimum, BTC, consistent with its commitment to adopt international standards in no event less stringent than those generally applied within member states of the EU, should only allow double-hull tankers to load and transit crude at Ceyhan by 2010, consistent with EU legislation. If the EU further accelerates its timetable for the phase-out of single-hull tankers, the Panel recommends that BTC adopt the new schedule. Finally, the Panel recommends that BP encourage Turkey to adopt EU standards for transit of crude oil. 17

24 8. Monitor Social Impacts Consolidated Executive Summary of Panel s Work in 2003 Ensuring that local communities should have an effective means of communicating with BP and its Partners is essential to deal with the concerns and disputes that inevitably arise during large-scale construction projects. Ongoing monitoring of social impacts of the Projects, as well as the establishment of clear grievance procedures, are also important elements of effective implementation of the EIA and the Resettlement Action Plan (RAP). The Panel recognizes that BP already has established certain monitoring and grievance mechanisms in cooperation with the construction contractors. In its Interim Report, the Panel recommended that these monitoring mechanisms, both during and after construction, should directly involve civil society including local community representatives. The Panel recommended that continued vigilance is required from BTC to ensure that disputes are resolved in a timely, fair, and satisfactory manner. In this Report, the Panel identifies a number of issues arising out of the land acquisition process in Turkey, including the use of an accelerated procedure for acquiring land under Turkish law. The Panel recommends that BP and BTC remain attentive to fairness issues associated with the land acquisition process in Turkey and continue monitoring the public use of RAP Fund payments for communal lands as well as RAP Fund payments to informal individual users and fisherman. The Panel plans to revisit these issues in the future. 18

25 Consolidated Executive Summary of Panel s Work in Strengthen Support to SMEs It is the Panel s view that BP s support for small- and medium-size enterprises (SMEs) is critical for the development of the economies in the host countries. BP has taken a number of important steps to help ensure that SMEs benefit through subcontracting opportunities and through skills and technical development. For instance, as the Panel noted in its Interim Report, BP and its Partners have established the Enterprise Center in Baku, through which local suppliers can identify contracting opportunities with the Projects and work to understand better the technical standards required by BP and its subcontractors. The Panel also offered a number of recommendations to strengthen SMEs, which it extends to Turkey in this Report. For example, these include (i) working with development organizations to provide technical assistance and other programs that target banking functions potentially benefiting SMEs, (ii) exploring opportunities to fund and/or support credit facilities that could be established by regional development organizations for the benefit of SMEs, (iii) increasing efforts to use nontechnical SMEs whenever possible to satisfy project needs, and (iv) identifying procurement opportunities for SMEs outside of the energy sector. Significantly, a number of these initiatives are already planned or underway. * * * * The Panel welcomes and invites comments on its two Reports from interested parties and looks forward to working with BP, NGOs, government agencies, international financial institutions, and other interested parties as the Panel continues its work on this important initiative. 19

26 Introduction Section II. Introduction 20

27 Introduction This is the Panel s second Report on the Caspian Projects. The Panel s Interim Report, released in August 2003, focused on Azerbaijan and Georgia. This Report focuses on a number of issues in Turkey, as well as security and human rights issues in all three countries. A. The Panel s Work BP s investments in the Caspian Projects come with concomitant responsibilities to contribute to positive change in this important region of the world. The Panel continues to subscribe to the view that the Caspian Projects provide BP with an opportunity to develop a new model or template for large-scale, extractive-industry investments by major, multinational enterprises in developing and transition countries. Through its Reports, the Panel seeks to provide Lord Browne and BP with recommendations and suggestions to help BP move in that direction and ensure that these investments will leave a positive, lasting legacy in the region. 4 The Panel completed a productive site visit to Turkey in mid-september 2003, meeting with key stakeholders in the Turkish government, affected communities, local and international NGOs, and representatives of the international development community. 5 The Panel visited Ankara, Istanbul, Erzurum, Adana, and Ceyhan, meeting with government and other officials as well as BP personnel and observing various sites along the construction corridor. The Panel also met extensively with the in-country BP/BTC project team as well as with both the leadership and line managers of BOTAS (the state-owned Turkish pipeline 4 A summary of the Panel s recommendations in both Reports appears in Appendix C to this Report. 5 A full list of the parties consulted in connection with the Panel s two Reports appears at Appendix B. 21

28 Introduction construction company) and received briefings on the full range of project activities and issues. In addition, the Panel met with a wide range of academic, media, and industry experts to discuss, among other issues, land acquisition, environmental issues, and the impact of the Ceyhan terminal on local fishing communities. As it did in the case of Azerbaijan and Georgia, the Panel retained two consultants with expertise in environmental and social issues. 6 These experts reviewed all of the EIA documentation, visited the field in mid-september 2003, and briefed the Panel on their reviews and site visit. The Panel also benefited from a distinguished country advisor who provided the Panel with important insights and guidance on a variety of issues and helped the Panel develop its agenda during its site visit. 7 A number of NGOs also advised the Panel on its agenda for Turkey and on the key issues addressed in this Report. This Report is organized in sections addressing the following topics: The economic impact of the Caspian Projects for Turkey, including revenue impacts; The environmental impacts of the BTC pipeline and associated facilities in Turkey as well as BP s strategy to manage and mitigate any potential negative environmental consequences; The social impact of the BTC pipeline in Turkey, including BTC s land acquisition process; 6 The Panel retained Professor Richard Fuggle of the Department of Environmental and Geographical Science, University of Cape Town on environmental issues, and Professor Daniel Bates of the Department of Social Anthropology, Hunter College of the City University of New York on social issues. 7 The Panel s country advisory, Ilter Türkmen, served as Minister of Foreign Affairs and as Turkey s Ambassador to Athens, Moscow, Paris, and the United Nations. He has also served in senior UN posts. 22

29 Introduction BP and BTC s supplemental investment initiatives in Turkey; The unique challenges for BP raised by the Lump Sum Turnkey Agreement with BOTAS; and The potential impacts on human rights of pipeline security measures in Azerbaijan, Georgia, and Turkey. Following the release of its Interim Report, the Panel briefed a variety of NGOs, several US government agencies, the International Finance Corporation (IFC) of the World Bank, and the European Bank for Reconstruction and Development (EBRD) on its work plan, findings, and recommendations. In addition, in October 2003, the Panel gave the IFC and EBRD an initial briefing on its observations on its Turkey site visit. Notes on the Panel s IFC and EBRD briefings can be found on the Panel s website: The Panel plans similar briefings following the issuance of this Report. The Panel s mandate extends for three years. As a result, the Panel will continue to pursue these and related issues through calendar year The Panel plans a site visit to the region in the fall of 2004, and it will issue another report on BP s progress on the Projects and BP s approach toward implementing the recommendations made in the Panel s two Reports for The Panel welcomes comments and input on its work program and focus from interested parties. The Panel continues to receive input from a variety of sources through its website ( and address (CDAP@caspsea.com), allowing interested parties to submit comments and information directly to the Panel, independent of BP. The Panel has 23

30 Introduction maintained its policy of accepting invitations to meet with any and all interested groups, 8 and has consulted extensively with NGOs actively working on the Caspian Projects. B. The Institutional Structure in Turkey The Project in Turkey comprises 1,076 kilometers of the BTC pipeline as well as associated facilities extending from the Georgian border to the Mediterranean coast ending at a marine terminal at Ceyhan. This section of the pipeline is being designed and constructed by BOTAS, the state-owned Turkish pipeline transportation company, pursuant to the Host Government Agreement (HGA) and a US$1.3 billion Lump Sum Turnkey (LSTK) Agreement between BTC and BOTAS, which is guaranteed by the government of Turkey. In contrast to Azerbaijan and Georgia, where BTC directly manages all aspects of pipeline construction, BOTAS performs the role of Managing Contractor in Turkey. Thus, BOTAS s responsibilities include, but are not limited to, the following: (i) design and construction of the pipeline, pump stations, and terminal; (ii) management of subcontractors; (iii) environmental planning, mitigation, management, remediation, and monitoring; and (iv) coordination with the Turkish government on security and permitting issues. In addition, under 8 To assist in its work, the Panel maintains a Secretariat based in Washington, D.C. The Secretariat, which consists of Peter Flanagan, David Marchick, Elizabeth Snodgrass, and Karin Kizer of Covington & Burling, provides both substantive and logistical support and works with the Panel to facilitate meetings and otherwise fulfill the Panel s mission. The Secretariat also held a number of independent meetings with government officials, NGOs, and other interested parties, conducted extensive research on Project-related activities, and provided recommendations to the Panel. 24

31 Introduction the HGA, BOTAS is responsible for land acquisition and compensation activities for which a lump sum of US$99 million was set. In Azerbaijan and Georgia, BTC supervises contractors and subcontractors handling the actual pipeline construction. In Turkey, however, BTC has an arms-length contract with the government of Turkey and BOTAS for the delivery of its pipeline according to agreed standards and specifications. In Azerbaijan and Georgia, BTC directly supervises contractors and subcontractors work to implement the commitments articulated in the ESIAs for these two countries, whereas in Turkey BOTAS has this responsibility. According to the Approved EIA (October 2002) for Turkey: BOTAS [is] responsible for implementing the provisions of the EMMP [Environmental Management and Monitoring Plan] and the SMMP [Social Management and Monitoring Plan] and supporting plans. Contractors will be responsible for the implementation of, and adherence to, all the mitigation measures outlined in the EIA the EMMP and the SMMP. BTC Co. will ensure that the management plans are implemented. 9 Through its guarantee of the LSTK Agreement, the government of Turkey has indirectly guaranteed up to US$300 million to assist BOTAS in meeting its environmental and other obligations under the LSTK Agreement, in the event that BOTAS is not able to complete its tasks within the US$1.3 billion budget. To the extent costs go beyond this US$300 million buffer in satisfying commitments, including from the EIA, that are appropriately attributable to the LSTK Agreement, the amounts generally will be withheld from transit fees and other amounts owing to BOTAS (subject to a cap of 30 percent of the overall LSTK Agreement 9 Non-Technical Summary, Environmental Impact Assessment, Baku-Tblisi-Ceyhan Crude Oil Pipeline: Turkey (Sept. 2002) at

32 Introduction budget). BOTAS will separately be liable for monetary damages in the event the Project is not completed on time. As BTC has undertaken to ensure that the management plans are implemented, 10 and as also required by the Project Agreements, BTC and BOTAS have published a number of documents to guide BOTAS and its contractors activities in order to ensure compliance with the commitments made under the EIA. These documents include plans covering, among other issues, environmental management, reinstatement, traffic management, and oil spill response. 11 BOTAS is also responsible for (i) communicating the EIA requirements to its subcontractors; (ii) inspecting, monitoring, and reporting on compliance; and (iii) overseeing the subcontractors development and execution of Contractor Implementation Plans and Procedures (CIPPs). BOTAS has established a Directorate in Ankara for planning and execution of engineering, procurement and construction activities. BTC also has assigned delivery managers and supervisors along the pipeline corridor and at the terminal to monitor BOTAS s work and help ensure compliance with the LSTK Agreement, including the EIA commitments. The Panel spent a considerable amount of time before, during, and after its visit to Turkey examining the BTC-BOTAS relationship. Specifically, the Panel met with BOTAS s Chairman as well as BOTAS delivery managers in several locations in Turkey, including those at 10 Id. 11 For a complete list of the various management plans, see BTC Project EIA, Turkey (Oct. 2002) at