case story btc pipeline

Article 12

The BTC Pipeline Case Study:Following through onGlobal CompactCommitments*Gare SmithFoley Hoag LLC**

* Peer review of this case study was provided byProfessor Errol P. Mendes, University ofOttawa. Funding for this case study wasprovided jointly by BP p.l.c. and Foley Hoag.

**Gare A. Smith chairs the corporate socialresponsibility and risk management practice atthe law firm Foley Hoag LLP. Prior to joiningFoley Hoag, he was a Vice President at LeviStrauss & Co. where his responsibilitiesincluded supervising global implementation ofthe company’s code of conduct. During theClinton Administration, Mr. Smith served asPrincipal Deputy Assistant Secretary in theU.S. Department of State’s Bureau ofDemocracy, Human Rights & Labor. In thatcapacity, he was a U.S. representative to theU.N. Human Rights Commission, theInternational Labor Organization, and the U.N.Working Group on the Rights of IndigenousPeoples. He also helped to launch thePresident’s Model Business Principles andadvise the Apparel Industry Partnership increating a code of conduct and anindependent monitoring system. Previously, heserved as Senior Foreign Policy Advisor &Counsel to Senator Edward M. Kennedy. Mr.Smith serves on the boards of a number ofhuman and labor rights organizations. Mr.Smith and Foley Hoag were retained to providecorporate social responsibility advice,particularly with respect to human rights,security, and labor rights issues, to BTC Cowith respect to the BTC Project. In thatcapacity, Mr. Smith was provided access to awide array of material and worked closely withexecutives at BP and BTC Co. and the leadersof non-governmental organizations interestedin the BTC Project.

70 Case Abstract

70 Company Profile

71 The BTC Pipeline ProjectScope and History of ProjectConsultations with StakeholdersTransparencyHuman Rights and Environmental

Concerns in Designing the PipelineLegal Framework

75 Concerns Raised by External StakeholdersAmnesty InternationalOther Stakeholder Concerns

75 BTC Co Response to NGO ConcernsJoint StatementProject SecurityThe Deed Poll

78 Conclusion: Issues for the FutureResponse of the IFIsMonitoring and ComplianceContinued Relationships with

Stakeholders and Communities

79 Sources

70 The BTC Pipeline Case Study: Following through on Global Compact Commitments

Case Abstract

This case study focuses on the Baku-Tbilisi-Ceyhan (“BTC”) oil and gas pipelineproject which, when completed, will carryup to a million barrels of oil a day over athousand miles across the Caspian regionand provide the first direct transportationlink between the Caspian andMediterranean Seas. In designing the BTCProject, BP p.l.c. (“BP”), the Projectoperator, on behalf of itself and the othershareholders (collectively, “BTC Co”),sought to establish a new benchmark for amajor infrastructure project with respect tothe promotion of internationally recognizedhuman rights and environmentalstandards. To this effect, BP incorporatedinto core Project documents acommitment to respect applicablestandards articulated in the U.N. UniversalDeclaration of Human Rights (“UDHR”), theTripartite Declaration of Principlesestablished by the International LaborOrganization (“ILO”), and the Guidelinesfor Multinational Enterprises promulgatedby the Organization for EconomicCooperation and Development (“OECD”).Early initiatives to implement suchstandards included efforts to avoid asignificant environmental and safetyhazard, adopt a precedent-setting level oftransparency, and comprehensivelyengage local populations.

Despite these commitments and BP’sinitial efforts to implement them, severalnon-governmental organizations (“NGOs”)raised environmental and human rightsconcerns about the Project. In particular,these organizations contended that thepipeline could undermine the humanrights of local residents, endanger theenvironment, and spark further conflict ina region that suffers from ethnic tension.This case study is primarily relevant toconcerns raised in conjunction withPrinciples 1, 2, and 7 of the U.N. GlobalCompact regarding broad human rightsand environmental principles, includingthe overarching objective that businessesare expected to support and respect,

within their spheres of influence, theprotection of international human rightsand adopt a precautionary approach inaddressing environmental challenges.

After these concerns were raised by theNGOs early in 2003, BP guided BTC Co inaddressing the issues in several ways. Inthe most far-reaching response, thecompany drafted and orchestrated thesigning of a “Joint Statement” on May 16,2003 by the three host governments,guaranteeing adherence to internationallyrecognized human rights, labor rights, andenvironmental standards, including acommitment to the standards espoused inthe Voluntary Principles on Security andHuman Rights (“Voluntary Principles”).Additionally, BP engaged AmnestyInternational (“Amnesty”) in an opendialogue about Amnesty’s concernsregarding the Project. As a result of thisdialogue, BTC Co took steps to addressAmnesty’s chief concern by drafting andsigning a Deed Poll, a legally bindingcontract designed to protect the rights ofthe three host governments to promoteand regulate human rights andenvironmental issues.

Although the BTC Project continues toface opposition from a group of NGOs thatsought to halt funding for the Project fromthe International Finance Corporation(“IFC”) and the European Bank forReconstruction and Development(“EBRD”), Amnesty, without endorsing theProject per se, has welcomed thecompany’s commitment to promote thehighest human rights standards. BP mayhave been able to avert some of theNGOs’ concerns by undertaking a HumanRights Assessment and proactivelyengaging with these stakeholders at anearlier juncture. In light of the Project’santicipated lifespan of forty years, theprimary challenge facing BP at thisjuncture will be to effectivelyoperationalize and implement thestandards it has set.

Company Profile

The BTC Project is owned by BTC Co andits shareholders — a group of elevenpetroleum companies with upstreaminterests in the Caspian region. BP holdsthe largest ownership share in BTC Co,and will act as the operator of the Project.

BP is the holding company of one of theworld’s largest petroleum andpetrochemical groups. Its main activitiesinclude the exploration and production ofcrude oil and natural gas; the refining,marketing, supply, and transportation ofthose products; and the manufacturingand marketing of petrochemicals. BP isalso active in exploring renewablesources of energy generation, includingsolar power. It has operations in over 100countries in Europe, North and SouthAmerica, Asia, and Africa.

BP is one of the three largest integratedenergy companies and has one of the topthree reserves in the global oil and gasindustry. Each day BP generatesapproximately three million barrels of oilequivalent production. With revenues of$179 billion, market capitalization of $152billion, and over 115,000 employees, BPis among the world’s most significantmultinationals. During the past decade itmerged with Amoco and acquired othercompanies, including ARCO. Although BPmaintains a diversified portfolio, the BTCProject is of great importance to thecompany and is the largest cross-borderproject in the world.

During the past decade, BP developed areputation for adopting progressivepolicies, which are also closely associatedwith its chief executive, Lord JohnBrowne. Lord Browne’s introduction toBP’s website states, “A good businessshould be competitive, progressive and aforce for good. In everything we do, weseek to make a constructive contributionto the world’s increasing requirements forenergy and materials.”

The BTC Pipeline Case Study: Following through on Global Compact Commitments 71

BP’s business principles were adopted byall of BTC Co’s shareholders for the BTCProject. To this effect, BTC Coshareholders are committed to“respecting the rule of law, conducting[their] businesses with integrity, andshowing respect for human dignity andthe rights of the individual wherever [they]do business; creating mutual advantagein all [their] relationships so that peoplewill trust [them] and want to do businesswith [them]; demonstrating respect forthe natural environment and worktowards [their] goals of no accidents, noharm to people and no damage to theenvironment; and managing [their]financial performance to maximize long-term value for [their] shareholders.”194

The BTC Pipeline Project

|Scope and History of Project

The BTC Project is of great regionalsignificance because it represents thefirst direct transportation link between theCaspian and the Mediterranean Seas,thereby avoiding the environmentallysensitive Turkish Straits (including theBosphorus, which flows through thecenter of the World Heritage City ofIstanbul). The Caspian region has thepotential to become one of the major oiland gas producing areas in the world; itsoil and gas reserves are estimated to besimilar in size to those in the North Seaand the Gulf of Mexico. The landlockednature of the Caspian Sea, however,combined with the limited capacity ofpipeline and rail networks serving theregion and the reliance of the existingnetworks on export via the Turkish Straits,have posed particular challenges for thelong-term development and export ofAzerbaijan’s petroleum resources.

The pipeline will be the primary conduitfor oil produced from the Azeri-Chirag-Gunashli (“ACG”) oil field, which is about100 kilometers off the coast of Baku andhas an estimated 5.4 billion barrels ofrecoverable resources. Oil exports fromthe development of ACG are expected toincrease to more than one million barrelsa day by 2009 and this production couldmeet up to 10% of incremental global oilrequirements over the next decade. Thepipeline will stretch for 1,760 kilometersfrom Baku, through Georgia, to the portcity of Ceyhan in southeast Turkey. FromCeyhan, the oil will be loaded ontotankers and transported to internationalmarkets. The estimated cost of thepipeline’s construction is $2.95 billion.

When it is completed in 2005, the Pipelineand the associated ACG, Shah Deniz, andSouth Caucuses Pipeline (“SCP”) projectswill have generated more than $20 billionin investment. This investment isexpected to enable the AzerbaijanRepublic to realize between $30 and $65billion in revenues from the sale of its oil.Additionally, Georgia and the Republic ofTurkey will together realize approximately$2.4 billion in transit revenues during thefirst twenty years of operation and theShah Deniz and SCP gas Projects willdeliver energy throughout the region.Approximately 10,000 jobs will be createdduring the construction of the pipelineand approximately 850 permanentpositions will be established during its 40years of anticipated operation.

The oil and gas production facilities andpipelines in Azerbaijan, the pipelines inGeorgia, and the pipelines and terminal inTurkey represent the largest single foreigndirect investment in each country. Thispresents both opportunities and challengesfor the Project and the host governments.

|Consultations With Stakeholders

According to BTC Co, the Project wasdesigned to “demonstrate that businesscan be conducted in a way that makes apositive commitment to human rights.” Itwas also intended to be “a model forgood corporate governance, and …notbecome a catalyst for conflict in theregion.”195 As the Project’s operator, BPstates that it is committed to “ensuringthat the project results in real benefits forthe countries through which the pipelinepasses — from the seats of government,to local villages and farmers living alongthe pipeline route.”196

In an early effort to implement thatcommitment, BP undertook steps toensure that the more than 450communities and 30,000 landowners andland users affected by the pipeline wereconsulted over a 20-month period. BPpublicly emphasized that it was critical tothe Project’s success that communitiesalong the pipeline route and those directlyaffected by construction were activelyinvolved in project planning. Community-level consultation occurred at everysettlement within two kilometers of eitherside of the pipeline right of way, withintwo kilometers of potential locations forpipe yards, and within five kilometers ofpotential sites of major constructioncamps. The objective behind suchextensive consultation was to securesignificant community involvement andsupport at the outset of the Project bydealing with concerns proactively andsupporting sustainable communitydevelopment.

BTC’s consultation process was based onthe IFC’s policy on Disclosure ofInformation. The consultation anddisclosure process carried out for the BTCProject was designed to comply withinternational best practices and wasunprecedented in scope. BP based thisprocess on the IFC’s guidelines for


managing a public consultation process:plan ahead; test the program; invest timeand money; involve operations managersdirectly; hire and train the right people;maintain overall responsibility; coordinateall consultation; build dialogue and trust;manage expectations; work withgovernments; and work with NGOs andcommunity-based organizations.

Key stakeholders for the Project wereidentified at an early stage: localauthorities; national and local NGOs withan interest in the project and useful dataor insight into local and nationalchallenges; broad-based interest groups,such as the media, academics,foundations, and communityorganizations; residents of communitiesadjacent to the pipeline corridor andabove-ground installations; landownersand land users, including migratoryherders who would be affected by theProject and fishermen near the marineterminal; international financialinstitutions (“IFIs”), including the IFC andthe EBRD; and BTC partner organizations.

Several projects were commissioned byBTC Co prior to commencement of theProject to communicate the Projectsponsors’ goals and expectations toaffected communities. One of these wasthe “Regional Review,” which wasprepared to stimulate dialogue betweenthe Project sponsors and the relevantstakeholders, as well as to increase theflow of information about the Project. TheRegional Review reflects 18 months ofconsultation and evaluation and serves asa comprehensive socio- and macro-economic assessment of the BTCProject’s impact on the region. No otherextractive sector project has undertaken abroader or more extensive multi-dimensional assessment of its impact onsurrounding communities.

One of the Regional Review’s principalfindings is that the BTC Project can serveas an example and as a positive influenceby engaging with stakeholders in

constructive dialogue and incorporatingthem into the business process. Within thebusiness teams, there was alsoagreement that the Project should usebest international practices and standards.Broadly speaking, the issues addressed bythe Review can be divided into threecategories: economic (oil and gasrevenues; employment, and procurement;community/social investment; anddomestic energy), social (ethicalperformance; human rights; and conflict);and environmental (biodiversity; oil spillresponse; and greenhouse gas emissions).

Perhaps most important with respect tocommunity engagement, the mostdetailed consultation regarding thepipeline route was done as part of theintegrated Environmental and SocialImpact Assessments (“ESIAs”). A separateESIA was conducted for each of the threenations, as required under the HostGovernment Agreements (“HGAs”) signedby BTC Co with each sovereigngovernment. The ESIAs examined thepotential environmental and socialimpacts of the projects on the biological,physical, and human environment. TheESIA process culminated in the productionof a draft ESIA report for each country,which was followed by a 60-day publicconsultation, disclosure, and reviewperiod. Comments received during thereview stage were incorporated into afinal ESIA report, which was submitted tothe host government for review andapproval. Management and monitoringplans were developed as part of an effortto ensure that the commitments made inthe ESIAs will be delivered and actedupon throughout the life of the Project.

During the preparation of the ESIAs, arange of participatory consultationmechanisms were employed, includingone-on-one interviews with members ofthe local communities along the pipelinecorridor, workshops with local andinternational NGOs, workshops andmeetings with regulatory authorities,meetings with scientists and experts,

feedback questionnaires, and projectinformation leaflets. Cultural and gender-specific mechanisms were developed inan effort to maximize the consultation’seffectiveness, including female-to-femalemeetings, venues chosen to ensuremaximum access, and transportationassistance. Local libraries, governmentand local authority offices, communitycenters, schools, NGO offices, and BPoffices in Baku, Tbilisi, and Ankara wereused to disclose and receive commentson the draft ESIAs. Draft ESIAs were alsotranslated into local languages tofacilitate the consultation process.

In conducting the ESIA for Georgia alone,74 meetings were held with localcommunities; 6 environmental workshopswere hosted; 27,500 disclosuredocuments were distributed to 26locations around the country; andadvertisements were run in 20newspapers. Feedback from all of theseinitiatives was factored into the ESIA,along with more than 3,000 publiccomments that were individuallyanswered. In Turkey, 450 copies of thedraft ESIA were distributed tostakeholders along the route, and 10,000non-technical summaries and 22,000community pamphlets were distributed. Inaddition, BP hosted more than 100community meetings, 10 meetings withregional NGOs, and three majorconferences with international NGOs andthe press. As a result of theseengagement efforts, 1,652 commentswere incorporated into the final ESIAsubmitted to the Turkish government.197

In keeping with the HGAs and IFIsrequirements, part of the consultationprocess with the local communities alsoincluded developing a comprehensivePublic Consultation and Disclosure Plan(“PCDP”) for each of the three countries.Each PCDP was translated and appendedto the country-specific ESIAs. Each PCDParticulates the following elements: rolesand responsibilities, project description,regulatory context, stakeholders consulted,


plans for document disclosure,questionnaires used, and leaflets and othersupporting information disseminated.

The continuous nature of the contact thatBTC Co maintains with stakeholders hasbeen essential for understanding concernsabout the Project and expectations of thelocal communities. This dialogue hasenabled BTC Co to identify potentialproblems at an early stage and proposesolutions to such issues.

Traditionally, large projects areaccompanied by philanthropiccontributions to local communities. BTCCo reports that it intends to go beyondthis approach by establishing a multi-million dollar community investmentprogram with the objective of supportinglocal social infrastructure and stimulatingeconomic opportunities. The program isintended to use the BTC investment as acatalyst for building sustainable economicand community capacity, including foreducation, local enterprise development,and other activities that extend associatedbenefits to the wider population.

The program is to be based on bestpractices developed by donor anddevelopment agencies and involve NGOsand other organizations as implementingpartners. BP is exploring ways to createpartnerships between BTC Co and otherorganizations, including the IFIs. InOctober 2002, for example, severalprojects were jointly funded with theEurasia Foundation to support businessethics, commercial law, and accountingcourses in Azerbaijan.

|Transparency

BP publicly recognized at an early stagethat transparency with respect to the BTCProject could play a significant role inensuring the Project’s success. It alsorecognized that establishing a stable andtransparent legal and fiscal regime for the

Projects’ investments could provide amodel for other foreign investment in theregion and help to facilitate thedevelopment of local enterprise.

To this end, BP took steps to ensure thatthe BTC Project set a new industrybenchmark for transparency. Over 11,000pages of project documents were madeavailable to the public on the BTCwebsite,www.caspianexportanddevelopment.com.The publication of this informationprovided stakeholders with a broadunderstanding of the Project and itsimplications. Included on the website arethe HGAs signed with each country andthe ESIAs and PCDPs regarding eachcountry, as well as core projectdocuments such as the ProductionSharing Agreements (“PSAs”) and theInter Governmental Agreement (“IGA”).The Regional Review is also located onthe website. Readers are invited to submitcomments regarding their questions andconcerns with respect to the Project.

The BTC Project is the first extractivesector project undertaken to make thisamount of material publicly available.

|Human Rights and EnvironmentalConcerns in Designing the Pipeline

In its Regional Review, BTC Co commits toensuring that “respect for culture,individual dignity and human rights,” will“dominate all interactions.”198

Implementation of this commitment in amanner deemed satisfactory to allstakeholders may not be possible and willcertainly not be easy.

One of the first human rights issues theProject confronted was the selection of thepipeline route. BTC Co sought acommercially viable option that woulddeliver the oil to an appropriate locationfor sale to world markets while minimizingrisk, avoiding the displacement of

communities, and incorporating long-termsecurity arrangements.

Ultimately, BTC Co was able to design apipeline route that avoided the permanentdislocation of any people and thedestruction of any buildings. The BTCpipeline, as well as the affiliated SCPpipeline, will be buried, with landreinstated for use following construction.Economically displaced landowners andusers are to be compensated using atransparent and consultative process thatprovides opportunities for economicenhancement. Procedures andmechanisms associated with the landacquisition and compensation process arereported in the Resettlement Action Plans(“RAPs”), which were publicly released tothe communities and to the general publicon the Project website.

Security considerations were anotherintegral factor in the decision-making anddesign of the Project. The Pipeline wasrouted as far as possible away fromconflict zones and areas with knownsecurity concerns in order to minimize theneed for security interventions. Thepipelines avoid, for example, passingthrough areas of unrest in Georgia andprovinces in Turkey that were under astate of emergency during the last decade.

Environmental concerns were alsofundamental in the design of the pipeline. Oilspills from onshore and offshore exploration,production, and transportation representpotentially significant environmentalhazards. The independent EnvironmentalRisk Assessment concluded that the pipelinepresented the lowest risk of an oil spill and,therefore, was the environmentally optimalmode of transporting oil from the Caspianregion to world markets. Perhaps mostsignificantly, the creation of a pipelineavoids additional tanker traffic in the alreadycongested and narrow Turkish Straits.Construction of the BTC pipeline eliminatesapproximately 29,000 ship movementsthrough the Turkish Straits over the courseof the 40-year lifetime of the Project.


During the pipeline route selection andfacilities siting process, both BP andNGOs agreed that a particular emphasisneeded to be placed on avoiding sensitiveand protected environmental areas. As aresult of numerous re-routings and routerefinements, the pipeline was able tocircumvent internationally or nationally-designated protected areas, including theBorjormi-Kharagauli National Park, theArdahan Forest in Turkey, Lake Jandar onthe Azerbaijani/Georgian border, thenationally designated Gorchay andShamkir Reserves in Azerbaijan, and theKelkit Wildlife Protection Area in Turkey.Some environmental NGOs, however,oppose the current routing. One of theirchief concerns is that it poses anunacceptable risk to the Borjomi region inthe event of a leak in the pipeline.According to BP, measures will be takento minimize the number of potential leaksources, including optimizing pipelineblock valve locations, designing adequatecorrosion protection and secondarycontainment systems, and institutingprocedural measures to prevent andminimize spillages.

Mitigation measures are also to beimplemented during the Project’sexecution aimed at the removal orreduction of potential adverse impacts onnatural habitats or their functions. Thesemeasures include restrictions on theconversion of natural habitats, restorationof degraded habitats, and retention ofstrategic species. A voluntary regionalbiodiversity action plan is also beingdeveloped which will include investmentsin projects to maintain and enhancebiodiversity. Several such biodiversityinitiatives have already been started,including a tortoise breeding project atSangachal and a study of fish in theCaspian Sea.

|Legal Framework

Legal regimes must provide clarity,certainty, and high international standardsto attract complex and long-terminfrastructure projects like the BTCpipeline. In this instance, the transitionaleconomic and political natures of thethree host governments, in particular,those of Azerbaijan and Georgia,presented obstacles to BTC Co and theinternational investment community. Toensure that the highest possiblestandards were maintained, the partiescreated a Prevailing Legal Regime(“PLR”), a specially designed legalframework, for the Project. The creation ofsuch a legal framework is not unusual,and has been used by extractive projectseven in nations with highly developedlegal systems, such as Canada andAustralia. The PLR is designed tosupplement the existing framework,rather than replace existing laws orregulations. Its implementation enabledinvestors to obtain the necessary comfortrequired for investment in the Project andwill help ensure that the Project isoperated in accordance with bestinternational practices.

The Project is to be implementedaccording to the terms of the IGA betweenthe three host countries. The IGA wassigned on November 18, 1999 by thePresidents of the Azerbaijan Republic,Georgia, and the Republic of Turkey, andmemorializes each country’s support forthe development, construction, andoperation of the pipeline across itsterritory, along with the transit ofpetroleum liquids. As such, the IGA hasthe force of an international treaty andcontains commitments from eachgovernment with respect to theapplication of uniform and clearlyidentified technical, safety, andenvironmental standards; a detailed basisfor taxation; and provisions regardingsecurity for the Project.

The three Host Government Agreements(HGAs), which are between the hostcountries and BTC Co, enable thedevelopment of the Project. The HGAs aresubstantially similar for each of thecountries and set out in greater detail thetechnical, legal, and fiscal regime underwhich BTC Co undertakes the Project andthe mutual rights and obligations of eachgovernment and BTC Co. The HGAs containrights and guarantees from the respectivecountries to BTC Co with respect tomatters necessary to ensure the successof the Project, including land rights for theconstruction and operation of the Project,rights to import and export goods andservices, rights to transfer and convertcurrency, and guarantees of economicstabilization. The HGAs also set out theterms of the direct financial compensationfor each of the host countries.

The HGAs also set out a process for landacquisition and compensation that is tiedto the legal requirements and preferencesof the host countries. The Projectparticipants are committed to ensuring thatland acquisition and compensation isbased on an open and fair processfollowing consultation with affectedcommunities and meets the standardsestablished by the IFIs. To that end, theBTC Project complies with a range ofregulations promulgated by the World Bankand the IFC, including World BankOperational Directive (“O.D.”) 4.30 onInvoluntary Resettlement, World BankOpinion 11.03 on the Management ofCultural Property, IFC Opinion 4.04 onNatural Habitats, and the IFC’s OperationalProcedure Opinion 4.01 on EnvironmentalAssessment.

The PLR governing the Project ensuresthat health, safety, and environment (HSE)and the human rights and labor standardsapplicable to the BTC Project will in noevent be less stringent than the highest ofEuropean Union standards (including EUDirectives), World Bank Group standardsapplicable to the Project, and standardsunder applicable international labor and


human rights treaties. BP’s policies onethical conduct, relationships andsecurity, which set out commitments andresponsibilities for all BP employees andtheir contractors, are also incorporatedinto the PLR. These include explicitsupport for the principles in the UDHR, the1977 ILO Tripartite Declaration ofPrinciples Concerning MultinationalEnterprises, and the 2000 OECDGuidelines for Multinational Enterprises.

Concerns Raised by External Stakeholders

|Amnesty International

In 2002 and early 2003, AmnestyInternational UK conducted research andanalysis on the legal structureunderpinning the BTC pipeline. Amnesty’spurpose was to understand “the humanrights implications of the commercialagreements between the oil consortiumand the host governments in the countrieswhere the Pipeline would be built.”Amnesty published its findings in May2003 in a report titled, “Human Rights onthe Line: the Baku-Tbilisi-Ceyhan PipelineProject.” The report concluded that thelegal agreements “undermined theprotection of human rights and createddisincentives for the three states to fulfilltheir current and future human rightsobligations.” It warned that theagreements would “effectively create a‘rights-free corridor’ where the humanrights of thousands of people in theregion will not be protected.”

The essence of Amnesty’s critique of theBTC Project was that the ProjectAgreements could have a “chilling effect”on the host governments’ willingness toenforce their human rights, labor rights,and environmental obligations pursuant tointernational treaties. Amnesty warned

that the land acquisition could have theeffect of resettling the 30,000 people whowould be “forced to give up their landrights to make way for the pipeline”;there could be “inadequate enforcementof health and safety legislation to protectworkers and local people”; and therecould be a “serious risk to the humanrights of any individuals who protestagainst the pipeline.” Amnesty expressedparticular concern that the HGAs wouldcreate a disincentive for the hostcountries to protect human rights becausethe “governments have agreed to paycompensation to the BTC consortium ifpipeline construction or operation isdisturbed” pursuant to the HGA clauseindicating that host countries are liable forany “disruption to the economicequilibrium of the project.”

Based on the report, Amnesty sought: (1)clauses inserted into the HGAs statingexplicitly that no part of the agreementsshall make it more difficult for the hostgovernments to comply with their humanrights obligations under national andinternational law; (2) the formation ofindependent stakeholder committeeswhich would be responsible formonitoring standards and hearinggrievances over the lifetime of the project;and (3) the signing of contracts by BTC Cowith those employed to provide securityfor the pipeline making human rightsobligations explicit and enforceable. Inessence, Amnesty’s overarching interestwas to create a mechanism to ensurethat BTC Co’s commitment to constructand operate the Project in accordancewith “best international practice” wasenforceable by the host governments.

|Other Stakeholder Concerns

Other NGOs, including Friends of the Earth(“FOE”), the World Wildlife Fund, CornerHouse, and the Kurdish Human RightsProject, raised similar concerns regarding

the interpretation of the IGA and the HGAsand additional environmental concerns.These groups targeted their energiesprimarily at the IFIs in an attempt to delayor halt financing for the Project, includingloans by the IFC and the World Bank Group.

In addition, FOE wrote to the designatedNational Contact Points of five OECDcountries alleging five areas of Projectnon-compliance with the OECD Guidelinesfor Multinational Enterprises. Theseallegations are that: (1) BP exerted undueinfluence on the regulatory framework forthe BTC project; (2) BP sought oraccepted exemptions related to social,labor, tax, and environmental laws; (3) BPfailed to operate in a manner contributingto the wider goal of sustainabledevelopment; (4) BP failed to adequatelyconsult with project-affected communitieson pertinent matters; and (5) BPundermined the host government’s abilityto mitigate serious threats to theenvironment, human health, and safety. Inresponse, BTC Co maintains that itexceeded the standards set by the OECDGuidelines. To date, several of theinquiries are still ongoing.

BTC Co Response to NGOConcerns199

|Joint Statement

In an effort to respond to concerns thatBTC Co needed to clarify its commitmentto international environmental, social,labor, and human rights standards, theGovernments of Azerbaijan, Georgia, andTurkey, and BTC Co, issued a landmark“Joint Statement on the BTC PipelineProject” on May 16, 2003.

The first paragraph of the Joint Statementnotes that the parties “take the concerns[of the NGOs] seriously” and are“determined to make the BTC Project a


model project in all respects,” and that“the environmental, social, and humanrights aspects of the project are offundamental importance.” In paragraphfour, the parties state that they are awareof speculation among NGOs thatprovisions in the project agreementsmight be interpreted in a manner contraryto international human rights,environmental, or social and labor norms.

The Joint Statement stipulates that BTCCo and the host governments “consideredeach of the provisions identified [by theNGOs] and have concluded that none ofthe speculation included in recentcorrespondence reflects the intent orunderstanding of the parties with respectto their meaning or operation. We aredetermined to uphold the highestinternational standards for BTC and wecannot agree with those speculations.”The parties entered into the JointStatement to “minimize furthermisunderstandings, in particular in relationto project security and human rights, theenvironment, social and labor standards.”

The Joint Statement then delineates theinternational standards to which the partiesare committed within the areas of humanrights, security, labor, and environmentalstandards. It reaffirms that the principlesand policies set out in the OECD Guidelineson Multinational Enterprises “were fullyconsidered during negotiation of the BTCProject Agreements” and are reflected inthe BTC Project Agreement structure. Withregard to the environment, the JointStatement clarifies that the “IGA commitseach State to the application ofenvironmental standards and practices thatare ‘no less stringent’ than those generallyapplied within member states of theEuropean Union from time to time. TheHGAs and other BTC Project Agreementsgive effect to this commitment, andprovide a dynamic benchmark that willevolve as EU standards evolve.”

With regard to labor standards, the JointStatement confirms the parties’

understanding that ILO Conventions onForced Labor, Freedom of Association andthe Right to Organize, CollectiveBargaining, Discrimination, EqualRemuneration and Minimum Age, “all as ineffect from time to time, will apply to thedevelopment and operation of the project.”

|Project Security

The Joint Statement is also a landmarkdocument with respect to the issue ofsecurity, inasmuch as it is the first legalcommitment to the Voluntary Principles onSecurity and Human Rights. The U.S. andU.K. governments announced theVoluntary Principles in December 2000,and they have since gained recognition asthe emerging international standardaddressing the human rightsresponsibilities faced by extractivecompanies in their global securityarrangements. The BTC Project is the firsttime that the Voluntary Principles havebeen incorporated into the legal contractsgoverning a project.Security is perhaps the single mostimportant human rights issue to oil andgas companies due to the reputationaland legal risks related to the actions ofsecurity forces assigned to protectcompany assets in conflict-prone orconflict-ridden countries.

The Voluntary Principles address threesets of issues: Risk Assessment;Interactions Between Companies andPublic Security; and Interactions BetweenCompanies and Private Security. The RiskAssessment of the Voluntary Principlesidentifies key human rights “factors” to betaken into account as securityarrangements are planned, including:identification of security risks; potentialfor violence; the human rights records ofpublic and private security forces;strength of the rule of law; conflictanalysis; and equipment transfers. Keyelements governing the interactions

between companies and public/privatesecurity include the degree ofconsultation and advice withstakeholders, responses to human rightsabuses, compliance with policies, and thedeployment and conduct of personnel.

Although BTC’s “Regional Review”provides that the Voluntary Principles “areembedded into BP’s security managementsystem,” the Joint Statement was the firstProject Agreement to state thatcommitment and ensure that it becamepart of the PLR governing the Project.Specifically, it provides that “[t]he partiesconfirm to each other their mutualcommitment to the goal of promotingrespect for and compliance with humanrights principles, including those set forthin the Universal Declaration of HumanRights, the United Nations Basic Principleson the use of Force and Firearms by LawEnforcement Officials, United NationsCode of Conduct for Law EnforcementOfficials, the European Convention onHuman Rights and, in a mannerconsistent with our national laws, theVoluntary Principles.”Subsequent to the signing of the JointStatement, the three host governmentsmade another important commitment tosecurity practices that, in effect, helps tooperationalize the Voluntary Principles. Inaccordance with both the IGA and theHGAs, and “recognizing the need fortransparency and the sharing ofinformation and experiences inperforming security obligations andpromoting human rights,” theGovernments of Azerbaijan, Georgia, andTurkey signed a “Protocol Relating to theProvision of Security for the East-WestEnergy Corridor” on July 23, 2003. In thefirst chapter of the Protocol, thegovernments agree to cooperate insecurity matters, including identifying andclassifying potential security risks relatedto terrorism or acts of sabotage, sharinginformation that directly impacts theProject, and exchanging informationregarding methods to combat acts thatpose security risks to the Project. In


addition, the parties agreed to establish aJoint Pipeline Security Commission andcooperate in the mutual training ofmembers of security units involved inpipeline security.

The second chapter of the Protocol istitled the “Human Rights Dimension.” Inthis chapter, the governments recommitto implementing the Voluntary Principleswithin the framework of their nationallegislation, as well as taking all necessaryactions to ensure that individuals whomay have been credibly implicated inhuman rights abuses or criminal activitiesdo not participate in security services. Theparties also agree “to take all appropriateactions necessary to fulfill theirobligations related to security incompliance with” the principles andobligations set forth in a variety ofinternational treaties and human rightsinstruments, including the UDHR, the UNConvention Against Torture and OtherCruel, Inhuman or Degrading Treatment orPunishment, the International Conventionon the Elimination of All Forms of RacialDiscrimination, the UN Code of Conductfor Law Enforcement Officials, the UNBasic Principles on the Use of Force andFirearms by Law Enforcement Officials,the European Convention for theProtection of Human Rights, and theEuropean Convention for the Prevention ofTorture and Inhuman or DegradingTreatment or Punishment.

|The Deed Poll

Soon after the Amnesty report waspublished, BP and BTC entered into adialogue with representatives of Amnestyto address their human rights concernsand mitigate negative human rightsimpacts stemming from the PLR. Over thecourse of several months, they engagedin a series of discussions regarding howbest to resolve the issues outlined in theAmnesty report and, perhaps just as

importantly, to set the stage for acooperative effort through which to sharelessons learned more widely and developbest practice guidelines for the protectionof human rights within legal frameworksfor large projects.

As an outgrowth of this dialogue, BTC Codetermined that, through the use of aDeed Poll, it could address bothAmnesty’s overarching interest in creatinga mechanism to ensure that BTC Co’scommitment to operate the Project inaccordance with “best internationalpractice” was enforceable by the hostgovernments, and Amnesty’s morespecific interest in ensuring that the HGAnot have a “chilling effect” on the hostgovernments’ willingness to enforce theirhuman rights, labor rights andenvironmental obligations. (A Deed Poll,referred to more specifically on the BTC’sProject website as the “Human RightsUndertaking,” is a unilaterally bindingcontract made under British law.)

Accordingly, on September 22, 2003, alegally binding and irrevocable Deed Pollwas signed to achieve the followinggoals: (1) protect the rights of the threehost governments to regulate in the areasof human rights, health, safety, and theenvironment, without fear of claims byBTC Co that such regulation was a breachof the HGAs; (2) clarify that the standardsin the HGAs are not “frozen” as of thetime the Project Agreements were signed,but are instead dynamic and will changeover time as EU directives and standardsevolve; (3) protect the right of third partiesinjured by the BTC Project to bring claimsin domestic courts without fear that BTCCo would argue that domestic courts donot have jurisdiction to hear such claims;and (4) protect the host governmentsfrom fear of having to pay compensationto restore the “economic equilibrium” ofthe Project as a result of legislation orother action reasonably required byinternational human rights, labor,health, or safety laws in force in thehost countries.

In addition to the Deed Poll/Human RightsUndertaking, BP also committed topublishing a “Citizen’s Guide” to the BTCProject on its website in several of thelocal languages used along the pipeline’sroute. BP will also seek Amnesty’scontinued input with respect tooperationalizing the Voluntary Principlesand other security practices in a mannerthat demonstrates respect for humanrights and monitoring human rightsactivities with respect to the BTC Project.Both BP and Amnesty agreed to worktogether to proactively address keyhuman rights aspects of investment anddevelopment, such as the creation of bestpractices regarding the establishment ofHGAs and IGAs, and monitoringinstruments and processes.

Notably, without taking a positionregarding the Project as a whole, Amnestywelcomed the Deed Poll for addressingthe concerns noted and establishing aleadership position on human rights withinthe industry. Amnesty also emphasized,however, that the document was an “after-the-fact” effort to correct the HGA and thatfuture Project Agreements of this natureshould address these issues clearly fromthe start to avoid the need for additionalDeed Polls. In addition, Amnesty believesthat for the Deed Poll to have its intendedeffect, the option of local remedies willneed to be communicated to local lawyersand relevant civic groups.

Overall, the BP/BTC-Amnesty dialogueand the execution of the Deed Poll andother steps to address human rightsconcerns represented significant progressfor each of the parties and set a symbioticprecedent for other members of theindustry and the NGO community. Theimpact of the dialogue — while onlyrepresenting a beginning — wasimmediate and broad, providing Amnestywith new credibility as a guide andinterlocutor with the business community,and BP/BTC with diminished reputationaland legal risks with respect to the Projectand enhanced brand equity.


Conclusion: Issues for the Future

|Response of the IFIs

On November 4, 2003, the IFC’s Boardapproved loans of up to $250 million forthe BTC Project. While acknowledging thatthe “IFC has heard from a number ofenvironmental groups who have raisedsignificant concerns with regard to routingoptions, particularly through the Borjomiarea in Georgia,” Rashad Kaldany,Director of the World Bank Group’s Oil,Gas, Mining and Chemicals Department,responded to those concerns byobserving that “[r]outing options werecarefully assessed by IFC staff…whoconfirmed that the route chosen was theonly viable one with the significantmitigation and protection measuresproposed in this area.”

The IFC described the Project as“break[ing] new ground in transparency,environmental and social safeguards,community consultation and involvement,national and international civil societyengagement, and local economic benefit.”

Regarding consultation with those affectedby the pipeline, the IFC stated that it was“gratifying to hear directly from local NGOsand local communities. It is clear that localpeople want the pipeline to be built — butthey want it built in a safe, sustainable,and environmentally sound way.” The IFCalso noted that the compensationpackages for land, “which are consistentlyabove market rates, have been set and areindependently monitored.”

On November 11, 2003, following thedecision of the IFC, the Board of the EBRDapproved $250 million in loans for theProject. Agreement on the loan followed atwo-year analysis of the Project’senvironmental and social impact and theEBRD’s own public consultations.

|Monitoring and Compliance

In the IFC statement regarding theapproval of the loans, the Director of theWorld Bank Group’s Oil, Gas, Mining, andChemicals Department noted that theProject includes “nine layers of monitoring— four internal and five external — thatwill result in seven different reports beingmade public.” He added, “IFC believesthis level of monitoring and transparencyis unprecedented and provides the correctbalance of internal monitoring verified byexternal, independent monitoring andpublic disclosure for BTC. It alsodemonstrates that the project sponsorsand the lenders will focus onimplementation challenges and results onthe ground.”200

Although it appears that the BTC Projectis a model for the industry with respect toits commitment to human rights, laborrights, and environmental standards,construction of the pipeline is only 40%complete, and the Project is expected tobe operational for at least 40 years.Accordingly, it is imperative that BTC Coand the host governments quickly putthese monitoring programs into place.Some of these programs will be moredifficult to implement than others,particularly those for which monitoringstandards are only now being developed— such as security compliance for theVoluntary Principles.

In developing monitoring and compliancemechanisms, BTC Co should continue tobenefit from the relationships that itforged with Amnesty and other NGOs.Indeed, BTC Co and Amnesty arecommitted to working together to createeffective human rights monitoringinstruments and grievance mechanismsfor people in affected communities.

|Continued Relationships withStakeholders and Communities

In a similar vein, BTC Co must followthrough with respect to its comprehensivestakeholder engagement and consultationprocess, both in the short-term duringconstruction of the Project as well as inthe long-term over the life of the Project.

According to the Regional Review’sExecutive Summary, “As the projects movefrom planning to construction and intooperations, there will be follow upconsultation and reports tracking the issuesand project activities in the region. In theprojects’ aim to keep dialogue flowing andto obtain feedback and suggestions, furtherconsultations will be planned over the nextseveral months, and will continue throughthe life of the projects.”

The onus will be on BP to meet thiscommitment. The company must ensurethat it continues its outreach to thecommunities including, perhaps, byfacilitating the creation of citizens’advisory groups to counsel the Projectregarding ongoing and timely issues.Although the company set numerousprecedents with regard to communityoutreach and the incorporation ofinternational standards and best practicesin Project agreements, the challenge nowwill be to maintain this momentum. BP’sultimate test will be how it puts theoryinto practice and fulfills thesecommitments in the coming years.


Sources

The information and material in this casestudy was obtained from a variety ofsources. Many publicly availablecorporate documents were used asreference, including BTC Co’s“Environmental and Social Overview ofthe Baku-Tbilisi-Ceyhan Pipeline Project,”published in September 2002; BTC Co’s“Regional Review,” published in February2003; BP’s 2002 Environmental andSocial Review; BTC Co’s pamphlets on“Breaking New Ground” and “Citizen’sGuide to the BTC Project Agreements,”and each of the HGAs and the IGA. Inresearching the perspectives of a broadrange of NGOs, extensive web-basedresearch was performed, and AmnestyInternational’s report, entitled “HumanRights on the Line,” published in May2003, was cited frequently.

Additionally, the author was providedaccess to a number of senior-management officers at both BP and BTCCo, as well as to key NGO leaders. At BP,the author worked closely with staffmembers in the London, Washington, andBaku offices, including the Group VicePresident; Vice President for Reputationand Assurance; Vice President for ExternalAffairs; Director of International Affairs;Director of Government and Public Affairs;Commercial and Reputation AssuranceManager; Government and CommunityRelations Manager; and Manager ofCorporate Communications.

At BTC Co, the author was providedaccess to a broad spectrum of individualsin both Baku and Tbilisi, including theChief Executive Officer; CommercialDirector; General Counsel; Director ofSecurity; Regional Security Advisor;Communications Director; EnvironmentalManager; and Project Security Managersfor Azerbaijan, Georgia, and Turkey.

The author met with representatives ofAmnesty International offices in London,

New York, Washington, Oslo, and Paris,including the Chair of the Business Group(UK); Director of Finance (UK); BusinessGroup Manager (UK); Legal Advisor (UK);Business & Human Rights Coordinator(USA); Political Advisor/IGO Coordinator(Norway); President (France); andCommission Enterprises (France).

The author also conducted first-personresearch by visiting the project site inAzerbaijan and Georgia and participatingin meetings between BP, BTC Co, andAmnesty officials in London, New York,Washington, Oslo, and Paris.

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