Tbilisi, Georgia This is not just another pipeline; it
is a strategic framework that advances Americas national security
interests. It is a strategic vision for the future of the Caspian region.
So said Bill Richardson, energy secretary during the Clinton administration,
about oil and gas pipeline construction from the oil-rich Caspian Sea
through Georgia and Turkey.
Caspian Sea oil reserves are believed to be at least as large as those
in the North Sea, which currently supply about 8 percent of the worlds
oil, and the West has taken an enormous interest in this valuable resource
of the old Eastern bloc.
The Bush-Cheney U.S. National Energy Policy calls for supporting the
development of new oil exploration around the Caspian region, with emphasis
on a Georgia-Turkey pipeline.
But this is no unilateral U.S. pipeline dream. The World Bank and other
international financial institutions have worked intensely since 1994
to insure private investments and provide political risk mitigation for
the oil sector in the South Caucasus through institutional, policy and
legal reforms. According to a World Bank policy paper, the involvement
of public sector agencies can give a unique degree of protection to private
investors a so-called halo effect that should have
particular value ... in the Caspian region, where capital market access
is fragile and relations with foreign governments highly important for
geo-strategic reasons.
Oil development will boost Georgias economy, according to the Bank.
Development of the regions oil and gas resources has the potential
to deliver significant and sustained economic benefits to Georgia,
explained Judy OConnor, country director for Georgia at the World
Bank, in a July 2001 letter.
The Banks International Finance Corporation and the European Bank
for Reconstruction and Development helped fund the Early Oil pipeline
project, with a new oil terminal on the Black Sea. This $2 billion project
involves development of oil from a Caspian Sea offshore field; the construction
of related production facilities in Sangachal, Azerbaijan; and construction
of two pipelines from Sangachal terminal, one which connects to the existing
pipeline near the Russian border (the Northern Route Export Pipeline),
the other a new western pipeline through Azerbaijan and Georgia (the Western
Route Export Pipeline); this latter pipeline connects to a new storage
terminal at Supsa, Georgia and an offloading facility on the Black Sea.
The pipeline is operated by the Azerbaijan International Oil Company consortium,
which is headed by British Petroleum.
The Bank argues it can facilitate oil development in a socially and environmentally
sustainable manner. In March 2002, the World Bank began implementation
of a new Energy Transit Institution Building project that is intended
to enhance the countrys capacity to negotiate and implement oil
and gas transit agreements, while minimizing social and environmental
harms. With the Banks International Development Association providing
more than three quarters of the $12.26 million budget, the project will
fund consulting services and technical assistance related to environmental
assessments, contract negotiation, financial audits and oil spill prevention.
The Bank, along with the Global Environmental Facility (an intergovernmental
funder of environmental projects, administered by the World Bank) and
the European Union, has also funded an Integrated Coastal Zone Management
Program and the establishment of Kolkhety National Park. The Kolkhety
Lowland portion of the Georgian Black Sea Coast is a highly valuable and
ecologically sensitive hotspot of biodiversity with intact wetlands and
the unique Kolkhety Forests.
But East European environmentalists says the Bank is merely paying lip
service to environmental protection, and that its small environmental
loans are dwarfed by and in direct conflict with its large-scale,
long-term support for oil development.
The World Bank has tried to pave the way for public support of
a massive pipeline and other oil transit projects which will pump oil
from developments funded in the Caspian, says Merab Barbakadze of
the Georgian Environmental Law Club. And the Georgian government
is supporting all oil-related projects without calculating the cumulative
economic and social impacts.
Risky Ventures
Now the government is seeking without direct Bank encouragement
to intensify oil development with a growing number of new ports
and controversial projects within the Kolkhety Lowland, either directly
in or near by the territories designated to receive protection under the
Ramsar Convention on wetland protection.
Several controversial projects have already begun in the area of Kolkhety
Lowland, including plans for off-shore oil exploration, expansion and
rehabilitation of existing ports and construction of new ones.
A September 1999 presidential decree authorized the construction of an
oil terminal in the village of Kulevi by Argomar Oil Limited, a Cyprus-registered
company. The construction site is located in the middle of the Ramsar
site and the marine part of the World Bank-funded Kolkheti National Park.
The government permitted construction of the terminal despite numerous
violations of environmental regulations by Argomar, including violations
of the Ramsar Convention, failure to complete an environmental impact
assessment and failure to obtain required environmental and construction
permits.
The terminal includes 22 reservoirs with 100,000 tons of storage capacity
each. Oil will be transported by rail through the Kolkheti National Park.
According to Argomar, initial annual shipments of oil products will be
6 million tons, gradually rising to 10 million tons. Argomar is seeking
to rely heavily on debt to finance the $115 million to $120 million project,
but even the World Bank questions the projects viability. Currently
the company has certain committed volumes of somewhere between 1 and 2
million tons, concluded a September 2001 World Bank mission. The
Kulevi oil terminal cost a reported $115 million, of which at least $60-70
million is debt. This means, assuming a 10 percent interest rate, the
company must earn at least $7 million annually, after operating costs,
just to pay interest. A tariff of $7.5 on volume of 1 million tons would
leave little for operating costs. Thus on the face of it, the Kulevi Oil
Terminal investment seems an exceedingly risky venture with little chance
payback unless, as the project sponsor hopes, they can achieve a volume
of 10 million.
The government is pursuing several other projects that have generated
environmentalist protests. The unique biodiversity of Kolkhety lowland
now faces other threats from the Baku-Supsa Oil Pipeline, drainage of
Kolkhety Wetlands, oil exploration plans by Anadarko and other oil development
schemes.
The Bank is not supporting, and has even criticized, these initiatives.
In a September 2001 mission report, the World Bank states that the economic
justification for the oil terminal and rail system is unclear and seems
an exceedingly risky venture with little chance of payback
unless the maximum capacity can be achieved. Given the number of
competing transit routes and export terminals for Caspian oil, there is
a real possibility that Argomar will not be successful in obtaining funds
sufficient to complete the investment, the September 2001 World
Bank mission concluded raising the prospect of construction harming
the Kolkhety National Park without the project becoming operational and
providing any return to Georgia at all.
The potential damage from the oil terminal and related projects could
be severe, according to the Bank. The recent developments in the
Georgian Black Sea coastline the construction of Kulevi Oil Terminal,
the proposed railway link and marine access channel, the de-listing of
90 hectares of land from the Ramsar-designated Kolkheti Lowland without
proper notification, and the establishment of a new State Agency for the
Protection of the Black Sea and its Utilization/Exploitation of its Resources
are putting the overall [Georgia Integrated Coastal Management] project
development objective at risk, states the Banks mission report.
The Bank mission acknowledged that the potential for conflicts
of interest between conservation aims for Kolkheti National Park and the
business aims of private companies will remain. The entire marine area
of the Kolkheti National Park lies within areas licensed out to oil and
gas companies and exploration is ongoing. Additional port development
projects are also being considered. These possible developments point
to the relevance of the Georgia Integrated Coastal Management Project
and the need for the government to demonstrate greater commitment to making
it work.
Area environmentalists say the government is committed not to environmental
preservation, but to turning the entire marine reserve into an oil extraction
and transit zone. Further evidence of the governments disregard
for protecting the area, they say, is its de-listing of five hectares
from Ramsar sites in Kulevi for the construction of a fish factory and
harbors. A July 2001 presidential decree gave rights to five hectares
of non-agricultural land in a village called Kulevi to Argo, a Georgian
fishery company.
The World Banks Energy Shortage
For all its hand-wringing about the imminent harm the Georgian oil development
projects are soon to inflict on the environment and even to the
Banks own environmental projects World Bank officials have
done little to force a change in government policy. The Banks high-level
September 2001 mission to Georgia actually praised the oil terminals
technical quality and noted the importance to Georgia of private
sector investments, particularly those that require no explicit state
guarantees and seem to promise economic benefits.
The Banks lackluster effort to effect change in government policy
to protect the environment contrasts with its aggressive advocacy of trade
liberalization measures. In a July 2001 letter to the Georgian parliament,
for example, the Bank insisted that the government act to remove trade
barriers. Demanding the free export of metal scrap and timber from the
country, the Bank threatened that failure to reverse the timber export
ban could have an implication on our ability to provide financing
and it will certainly delay if not jeopardize financing for a forestry
project.
The Bank has threatened to cancel the Kolkhety National Park environmental
project, but that is a small project and evidently of little concern
to the Georgian government, which is following the Bank example in prioritizing
commercial development over ecological concerns.
Manana Kochladze works with Association Green Alternative
in Georgia. She is Georgian National Coordinator with CEE Bankwatch Network.
|