UK government reply to Baku-Ceyhan memo

31 January 2003

Letter from Rt Hon Baroness Symons,

UK Minister of State International Trade and Investment in response to

NGO memorandum on the Baku-Ceyhan oil pipeline

Dated 18th December 2002

Dear Nicholas Hildyard

Thank you for your letter of 13 November about the Baku Tbilisi Ceyhan Pipeline (BTC) project, which you sent to the Foreign and Commonwealth Office, the Department for International Development, HM Treasury and the Export Credit (sic) Guarantee Department. Thank you also for your subsequent letter of 21st November, addressed to Clare Short. I am responsible for ECGD, and for International Trade and Investment at the FCO and the DTI, and I am replying on behalf of all of the government departments to who you sent your letter.

I am grateful for the interest you and your colleagues have shown in the development of this important project. The BTC pipeline is a complex project, and you raise a number of important concerns that relate to its design and implementation. I am as concerned as you are to ensure that it is carried out with the highest regard to the economic, environmental and social impacts in the three countries through which it runs. I should like to assure you that, based on the information currently available, the UK government is giving this project due consideration.

The organisations that are considering providing support for the BTC Pipeline include ECGD, MIGA, IFC and EBRD, as well as Export Credit Agencies in other countries and commercial banks. The project sponsors are seeking cover from ECGD for the supply of UK goods and services, and for UK investments related to the project. Cover would only be given if the department were satisfied that the relevant environmental, social and human rights impacts had been properly addressed, and that the financial and project risks were acceptable.

IFC and EBRD have both been asked to provide loans, and are each currently appraising the investment opportunity. The Boards of the two organisations have not yet received detailed proposals. Support by both organisations would be conditional upon full social and environmental impact assessments, for which there are comprehensive guidelines, and upon any concerns, which these raise, being addressed. As Board members we will watch closely to ensure that both these procedures are followed and, should support be agreed, that management continues to keep the Boards informed during implementation.

The BTC pipeline will provide an export route for up to one million barrels of oil per day from the Caspian through Azerbaijan, Georgia and Turkey to the Mediterranean coast, without passing through the already congested and environmentally hazardous Bosphorus. BP is leading the consortium, which includes a number of major international oil companies, as well as the Azeri State Oil Company, and Turkey’s Turkiye Petrollerio A.O. The pipeline route was chosen specifically to avoid areas of conflict, and I am not thus aware of any reasons why the movement of people across the pipeline route will be restricted once it is completed. Resettlement Action Plans will be made available by the sponsors in due course.

As your letter notes, many of the arguments about the relative merits of the pipeline project are economic. The UK government’s view is that sovereign states should be able to develop their natural resources as they see fit, and that engagement and open trade with countries such as Georgia and Azerbaijan is a positive way to help them develop their economies, and improve their living standards. If the pipeline goes ahead, the economies of all three countries should benefit – either through oil revenues or transit fees, and through employment in local service industries.

However, it is important to be aware of the economic risks involved, although there are measures in place to ensure that these concerns are thoroughly considered and mitigated. Let me address a few of these.

First, debt. It is not in the UK‘s interest to support projects that will damage the economies of other countries, or which will not be paid for. Debt sustainability is a key determinant of ECGD support, and is also taken into consideration for IFI lending to all countries.

Therefore, the debt position of all three countries involved in the project will be carefully considered before UK support is agreed.

Second, the operation of the Azeri Oil Fund. The UK recognises that there are several approaches to managing oil revenues to deliver sustainable development outcomes. We respect the Azeris’ decision to use an Oil Fund, and agree that, properly executed, such a Fund can support sustainable social development. The IMF and the World Bank have been in discussion with the Azeri authorities to try to ensure that the Oil Fund operates in a transparent manner and is integrated in a consolidated fiscal framework. If the IMF and the Azeri authorities reach an agreement on the exact modalities of the operation, we will examine it closely when it comes to the IMF Board.

Third, the conditionality of Turkey’s IMF programme. I Understand that the new Turkish government intends to complete the forth review of the IMF programme in the New Year. As part of this process, clarification from the IMF on how the BTC project should score in Turkey’s public finances, and any further proposed conditionality on loan guarantees will be reviewed (the IMF judges that existing programme ceilings on Turkish loan guarantees, which rose through 2002 from the US $6.5 billion start-point in February, have been comfortably met so far).

Fourth, corruption in business practices, which has rightly been a concern in recent years. Under UK law, it is illegal for UK companies or nationals to commit corrupt acts abroad. We were pleased to endorse wholeheartedly the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions of 1999, and included bribery and corruption outside the UK in the scope of the Anti-Terrorism Crime and Security Act of 2001 which came into force last December. You may recall that at the WSSD in Johannesburg earlier this year, the Prime Minister announced the establishment of a broad coalition of governments,. companies and NGOs who are committed to developing a framework promoting transparency of payments world-wide in the extractive industries. The UK is playing a leading role in taking this initiative forward. BP backed the initiative in Johannesburg, and has played an active role in further discussions to shape it.

I am copying this letter to the Secretaries of State for Foreign and Commonwealth Affairs, for International Development, for Trade and Industry, and for Environment: to the Chancellor of the exchequer; and to the Ministers for the Environment and for Energy.

Your Sincerely,

Elizabeth Symons

Baroness Symons

See also: UK Baku-Ceyhan campaign website