cdap progress report - march 2005

Caspian Development Advisory Panel

BP Report on Progress, March 2005

The Caspian Development Advisory Panel (CDAP or ‘the Panel’) was commissioned by Lord

Browne, Group Chief Executive Officer of BP, in January 2003 as an independent, external

advisory body to provide Lord Browne and BP with objective advice on the economic,

environmental and social impacts of the Baku-Tbilisi-Ceyhan oil pipeline (BTC pipeline) and

other related BP activities in Azerbaijan, Georgia and Turkey.

Since January 2003, the Panel has made three visits to the region; Azerbaijan and Georgia in

March 2003; Turkey in September 2003; and all three host countries in October 2004. It has

also held meetings with government officials, non-governmental organizations (NGOs), think

tanks, academics, and other experts in London, Washington, D.C., Azerbaijan, Georgia, and

Turkey. During this time the Panel has been able to observe the BTC pipeline project from the

outset of the construction phase through to its final stages of completion.

The Panel has made a number of important recommendations that BP welcomes and

continues to give serious consideration to during the construction of the BTC pipeline and

other related developments. The advice and recommendations provided by CDAP cover a

wide range of project issues, such as investment in sustainable development, security and

human rights, transparency and revenue management, managing contractors, and the land

acquisition and compensation process. This Progress Report summarizes the measures BP and

BTC Co have taken with respect to the Panel’s recommendations. In the comparatively small

number of cases where we have disagreed with certain of the Panel’s recommendations,

senior staff have set out clear explanations for taking a different approach. It is primarily

envisaged as an update and extension to our response to the Panel’s Second Report which was

published in January 2005. It is being updated now because of significant progress in a

number of areas, and published as oil begins to enter BTC.

The activities of BP and BTC within the region are also monitored by a number of other

expert groups, including the Independent Environmental Consultant engaged by the BTC

Lender Group to monitor compliance with the BTC Project Environmental and Social

commitments, and the Expert Panel responsible for assuring the success of BTC’s Social and

Resettlement Action Plan (SRAP). The reports of these groups discuss many of the issues

raised by CDAP, and are referenced here where appropriate.

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The Panel will make a further visit to the region in late 2005 and issue its report in early 2006.

We believe the Panel’s work will continue to prove of great value in maintaining the

unprecedented level of consultation, public scrutiny, and engagement that has characterized

these projects to date and we share their view that BP’s Caspian projects provide “an

opportunity to develop a new model for large-scale, extractive industry investments by major,

multinational enterprises in developing and transition countries”.

I. Sustainable Development

In its first report published in August 2003, CDAP recommended that BP make a clear

commitment to investment within the Caspian region as a whole, that this commitment should

extend beyond the construction period to the full lifespan of the Caspian Projects, and that BP

work in partnership with other international development institutions active in the region to

leverage the investments made.

These recommendations have led to a unique approach to sustainable development, through

the creation of the Regional Sustainable Development Programme. This aims to achieve a

very simple, but nevertheless ambitious objective: to fulfil a pledge to people living in

Azerbaijan, Georgia, and Turkey that we will do all we can to ensure that the revenues which

we help to generate will create sustainable benefits to those most directly affected, as well as

to us as a company.

The Programme has two elements: the continuation of our activities aimed specifically at

those communities situated close to our facilities (the “Future Communities Programme”),

and the creation of the Regional Development Initiative (RDI), a multi-million dollar

programme of sustainable development in Azerbaijan, Georgia, and Turkey that is envisaged

as operating and offering benefits for the lifetime of the Caspian Projects. BP has made an

initial net commitment of $25 million to the RDI alone with further funding for continuing

community investment programmes and a substantial grant programme to projects in Georgia.

We will be seeking additional support from oil company partners in the projects, and from

others. RDI will focus on enterprise development, effective governance and access to energy,

within which building capacity will be a priority. The overall purpose of the initiative is to

deliver a long-term contribution to the social and economic development of Azerbaijan,

Georgia and Turkey by combining the experience, skills and resources of its partners.

BP appointed an RDI manager within its sustainable development team in June 2004, and has

recently appointed a development advisor to lead the initiative in Georgia. It has also recently

appointed a manager for its Future Communities Programme, to expand and build on the

current BTC/SCP Community Investment Programme (CIP) initiatives, which were described

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as “excellent models for delivery of corporate social investment and community assistance”

by the SRAP Expert Panel in February 2004.

As part of the RDI, BP has signed memorandums of understanding with the EBRD, IFC and

GTZ/KfW. Together these groups have developed programmes focusing on micro-finance

and lending to small-to-medium sized enterprises, on supply chain finance, and on energy.

Over the past six months a development professional on secondment from the UK

Department for International Development (DFID) has been working with BP to develop the

governance structure for running the RDI.

In October 2004, the RDI launched its first pilot project, in the towns of Borjomi and

Bakuriani in Georgia. The project is being implemented as part of the Greater Borjomi

Initiative, and seeks to provide social and environmental benefits through improved waste

management. A further project in Georgia in partnership with the EBRD aims to provide

banking services and finance opportunities to micro, small, and medium-sized enterprises

(MSMEs) close to the pipeline route. BP’s intention is to build on the experiences it gains

from these pilot programmes and from the BTC/SCP Community Investment Programme.

Further investment is anticipated as a result of these reviews.

In its most recent report – a letter to BP Group Chief Executive Lord Browne in December

2004 – the Panel recommends that “BP review the size of its initial RDI commitment with a

view to ensuring that it represents a commitment commensurate with the size and importance

of the projects and BP’s role in the region”. BP is currently reviewing the funding

arrangements for RDI, in discussion with partners.

As implementation of the Regional Sustainable Development Programme progresses, BTC

Co and SCP Co are identifying synergies with existing projects under the Environmental

Investment Programme (EIP). These synergies will reflect BP’s intention to build on the

programmes’ successes, and also to benefit from those lessons learnt so far, as the investment

programmes continue after the completion of pipeline construction, and into operations. The

continuation of these priorities will enable BP, BTC Co, and SCP Co to develop and build

lasting relationships with those communities most directly affected by their projects.

CDAP has also recommended that significant investment be directed at building and

strengthening civil society in the region, with a particular focus on investment in cross-sector

capacity building through initiatives that improve technical proficiency. One major project is

aimed at developing the capacity of national NGOs. BP and BTC have instituted a

programme of monitoring of its project and operational activities by Georgian and

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Azerbaijani NGOs. The monitoring programme, facilitated in Azerbaijan by the Open Society

Institute, and in Georgia by the Eurasia Foundation, contains a significant element of training

and capacity building, on such topics as proposal development, monitoring methodologies,

and report writing. BP and BTC contribute to the programme by providing access to staff and

facilities, and by meeting the costs of training and logistics. The first reports from the NGO

monitoring programme in Azerbaijan, on the themes of society, the environment, human

rights, local content, and cultural heritage, are expected by the end of May 2005. Reports

from the Georgian programme are expected in the second half of 2005.

In Turkey, BTC Co and the IFC recently agreed to fund a project led by the Turkish NGO

SÜRKAL, a CIP Implementing Partner, which aims to support and develop the capabilities of

NGOs and Community Based Organisations (CBOs) in northeast Anatolia. The project will

train NGOs and CBOs in the basics of sustainable development and community-based

development initiatives, while also building capacity in governance, fundraising, and project

management, with the aim of increasing their ability to develop and then obtain funding for

their own projects from the national and international donor organisations.

II. Transparency and Revenue Management

On 15 March 2005, the Government of Azerbaijan became the first in the world to publish a

set of audited reports under the UK Government Extractive Industries Transparency Initiative

(EITI). The reports, audited by Deloitte and Touche, detail aggregated revenues received by

the Government from foreign and national oil and gas companies working in Azerbaijan.

More details of this initiative are available in the BP Group Sustainability Report

The Panel has recognized BP’s work in support of the EITI as a “useful contribution” to its

goals, but goes further to recommend that publication of disaggregated data – identifying the

amount and nature of financial transfers by each company – would be more in keeping with

the transparency objectives of EITI. BP already makes public its financial data through

quarterly press briefings and the BP Azerbaijan Sustainability Report, which is freely

available in both English and Azeri. The report for 2004 will also include data from BP

operations in Georgia. BP has committed to including disaggregated EITI data in this report,

subject to obtaining the appropriate partner and government approvals.

In its latest report, the Panel recommends that BTC Co and SCP Co report their own data as

part of the EITI exercise. BTC and SCP did not participate in the EITI agreement because

they are pipeline businesses as opposed to extractive businesses. However, we agree that the

“distinction drawn between pipelines as transport vehicles and the extractive industries

proper is no reason for BTC to be less than fully forthcoming in the EITI context”. We intend

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to report BTC data within the Azerbaijan Sustainability Report and this will be done as far as

possible in accordance with EITI principles. It is our intention to be as transparent as possible

across all of our projects, subject to commercial confidentiality and approvals from our

partners.

The Panel recommends that BP consider partnering with international or regional

development agencies to provide technical assistance to the State Oil Fund of Azerbaijan

(SOFAZ) in areas of operations such as forecasting, investment management and project

appraisal. SOFAZ was established in December 2000 and its primary purposes are to manage

the macro-economic impacts of oil revenues and to save for future generations. BP has been

supporting revenue management workshops for SOFAZ – the most recent, covering macro-

economic forecasting, was completed in November 2004. Following this workshop, BP

received a request from Azerbaijan Government to provide support for an independent

specialist to advise on industrialisation policy and, in particular one where Azerbaijan could

most beneficially spend its oil revenues. Professor John Sutton, the Head of the Department

of Economics at the London School of Economics, subsequently visited Baku in March 2005

to carry out the necessary ground research, in particular meeting with small- and medium-

sized enterprises in various sectors. BP will continue to sponsor Professor Sutton's work in

this area with a view to making a significant contribution to the future success of Azerbaijan's

economic policy.

BP should also encourage the government of Azerbaijan, the Panel recommends, to develop

and adopt an oil fund law that would formalize the general arrangements that exist under

Presidential decrees and establish binding expenditure policies and priorities for the fund that

are closely aligned with the country’s poverty reduction strategies. In September 2004

President Ilham Aliyev signed an Order on the Approval of the Long-Term Strategy for

Management and Oil and Gas Revenues. BP, as a stakeholder, is pleased that the government

of Azerbaijan has asked the International Monetary Fund to conduct an assessment of fiscal

transparency in Azerbaijan against the international standards and codes for fiscal

transparency established by the IMF and the World Bank.

III. Security and Human Rights

CDAP has recognized BP’s efforts and its commitment in the area of human rights but states

that these commitments represent only a first step. The Panel comments: “Achieving them

will require continuing leadership by senior BP and BTC officials, the commitment of

resources, and a comprehensive monitoring and reporting structure focused on how these

commitments are being met on the ground”.

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A Joint Statement on the BTC Pipeline Project was signed and approved by the three host

governments and BTC Co in May 2003. This was followed by the signing by BTC Co of a

Human Rights Undertaking in September 2003, that makes a number of confirmations,

including that the Host Government Agreements will not be used by BTC Co to seek

compensation for actions required by a Host Government to fulfil its obligations under any

international treaty on human rights, labour, health, safety, or environmental matters. The

project partners have approved an SCP Joint Statement and an SCP Human Rights

Undertaking, as CDAP recommended, and approval for this is now being sought from the

three host governments.

The Panel commends BTC for issuing the legally binding Human Rights Undertaking as well

as the plain-language Citizen’s Guide to the BTC Project Agreement, which was released at

the same time. Both are consistent with the Panel’s recommendations in its Interim Report on

Azerbaijan and Georgia, published in August 2003. CDAP suggested further measures, in

particular that BP and other project participants accelerate efforts to operationalise the

planned arrangements for Project security and the protection of human rights, and that, to the

extent publication of these documents will not compromise the safety of people or the security

of the facilities, they make these more detailed security arrangements transparent and

accessible to the public.

BP has since agreed a Bilateral Security Protocol with the Government of Georgia, signed in

October 2004, that defines standards and procedures on the use of force and firearms, on

monitoring and reporting, recruitment and training of security staff, and on communication

and consultation between the two parties. The agreement is publicly available in both English

and Georgia on the projects website. We plan to conclude similar ‘Bilaterals’ with the

Governments of Azerbaijan and Turkey. As BP is the operator of the Western Route Export

Pipeline, the Northern Route Export Pipeline, BTC and SCP and related facilities, the

Bilateral Security Protocols will encompass security standards for all the projects.

CDAP has recommended that BP, BTC and the project partners actively engage with host

governments to help ensure the implementation of security obligations is done with due

respect for human rights. In early 2004, BTC Co and SCP Co entered into a partnership with

Equity International to support the delivery of human rights-based training to state security

organizations responsible for pipeline security. Equity International is a Geneva-based

foundation that works to promote respect for human rights in law enforcement through the

provision of human rights-based theoretical and practical training and support to police and

security forces.

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Equity International has delivered two training programmes for the Pipeline Protection

Department (PPD) in Azerbaijan, a division of the country’s Special State Protection Service

(SSPS) that is responsible for providing security for the pipelines. The programme is designed

to embed a sustainable human rights training capacity into the organization of the PPD and

this is done primarily through ‘training the trainers’ to a level of self-sufficiency. Equity

International completed the first training course for the PPD in Georgia in October 2004 and

in February 2005 embarked on the second training programme in Georgia.

The Panel advises that BP and BTC should publish details on the substance and progress of

any planned training activities that relate to human rights. In accordance with this

recommendation we have published on the projects website a summary of the Equity

International Human Rights-based training programme and a generic training curriculum.

CDAP also recommended that BP and BTC Co should involve national and international

NGOs in training efforts and we have made progress in line with this recommendation.

During 2004 BTC Co and SCP Co supported work by the Organization for Security and

Cooperation in Europe to provide civic education for local police, local NGOs and municipal

employees in regions along the route of the pipelines in Azerbaijan. The project was managed

by the Society of Women for Peace and Democracy in the Transcaucasus with the support by

the OSCE. The programme involved coordinating 13 NGOs selected to deliver 52 seminars in

the regions. These aim to build understanding of the benefits of community-based policing

and trust in local NGOs by developing awareness of the groups’ rights, obligations and roles

in society.

CDAP recommends that BP and BTC Co undertake a comprehensive human rights training

programme for both managers and personnel. In August 2004, senior line management of

BTC and SCP attended a Human Rights workshop in Baku, Azerbaijan. The workshop was

held to raise management awareness and understanding of key security and human rights

standards and laws, and the related risks in the context of the pipeline projects. We are

committed to ensuring that human rights training is also provided to our private security

guards. At manned facilities in Azerbaijan and Georgia, BTC Co will employ private

unarmed guards whose role is to provide security for the site and to control entry to the site.

BTC Co has developed a training plan for private security guards in Azerbaijan that includes

modules on Human Rights and the Voluntary Principles on Security and Human Rights. The

Voluntary Principles are also included as a contractual requirement in our relationship with

the private security company. BP and BTC Co will ensure that similar arrangements are put in

place for private security contracting in Georgia.

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CDAP suggests that “the use of local security personnel be sustained and even expanded, to

the extent possible, throughout the operations phase of the projects, so that local communities

can play an appropriate role in the execution of security planning and retain a sense of

ownership of the projects...”. We have an ongoing commitment to employ local people in

providing security for the pipelines and to help ensure the safety of people in project-impacted

areas. For example, the pipeline route will be regularly inspected by on-foot or horseback

patrols typically carried out by people employed from the local communities.

The success of the Projects from a human rights perspective, says CDAP, will necessarily

depend on a suitable monitoring program that (i) establishes a credible, accessible, and

independent point of contact for individuals who may be the victim of human rights abuses

and (ii) creates a reliable mechanism for regular, on-the-ground oversight of compliance by

the host governments and their security forces with existing legal commitments. BTC Co and

SCP Co have engaged the US law firm Foley Hoag to carry out independent monitoring of its

compliance with the Voluntary Principles. Foley Hoag is also monitoring the appropriate

discharge by BTC Co of commitments under the prevailing legal regime of the project

regarding respect for fundamental worker rights and the human rights of members of local

communities affected by the project. The most recent monitoring visit was completed in 4

October 2004. Further assessments will be undertaken this year and, while their reports to

date have been confidential, BTC intends to publicly disclose the Human Rights Assessment

that will be performed by Foley Hoag during 2005.

CDAP advises that BP and BTC Co publicly provide details regarding the mechanisms that

will be used for screening project personnel and that they define what constitutes a credible

implication in prior human rights abuses. BP and BTC Co should also urge the host

governments to take the same step. We continue to cooperate with established government

authorities of each host country on this matter. It is important to note, though, that we do not

screen or investigate personnel ourselves. Project personnel are screened by appropriate

national security agencies. This recommendation has been or will be addressed at a general

level through the Bilateral Security Protocols. For example, the Bilateral agreement signed

with the government of Georgia in October 2004 sets out procedures that the government and

BP will follow in hiring and screening security personnel.

The Panel has suggested that BP and BTC Co make public specific guidelines for what

constitutes a ‘clear risk’ to project personnel and assets. A clear risk constitutes reliable

information or analysis that a person or asset is under threat of violence, extortion or fraud.

Risk is assessed by collection and experienced analysis or relevant information from multiple

sources such as host government, police, commercial information companies, embassies, and

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from other companies. A general summary of the risks BP and BTC Co track on a regular

basis is available on the projects website.

One of the Panel’s final recommendations in the area of Security and Human Rights is that

BP and its partners establish a monitoring mechanism, such as an ombudsman’s office, in

each of the host countries that, subject to local law, would (i) serve as a point of contact in

each country for people alleging Project-related human rights violations, (ii) confidentially

investigate such allegations, and (iii) make recommendations to BTC on how to address the

allegations. BP agrees on the need for a monitoring mechanism and, as described above, has

appointed Foley Hoag to monitor the projects’ potential impact on fundamental human rights.

Foley Hoag undertook three human rights monitoring visits to Azerbaijan, Georgia and

Turkey during 2004, during which it assessed the degree to which BTC has fulfilled it human

rights commitments and made recommendations to improve compliance. Foley Hoag will

undertake further assessments during 2005 and the reports will be made publicly available via

the projects website.

Confidential investigations are the preserve of the state authorities, and are not within the

legitimate remit of a private investor such as BP or BTC. However, in line with BP's

commitment to the Voluntary Principles on Security and Human Rights, we will cooperate

with host government investigations of security-related human rights issues if and when they

arise and we will monitor the status of investigations and press for their proper resolution.

IV. Waste Management

During its visits, the Panel has commented on the “extraordinary level of environmental

degradation in Azerbaijan”, describing abandoned derricks, rusting oil platforms, and

abundant oil slicks, both onshore, and offshore. The Panel accepts that while “BP cannot and

should not be held responsible for the environmental degradation associated with previous

environmental mismanagement, it must, at a minimum, ensure that it minimizes the negative

impact of its project activities on the environment”, and recommends that “BP and BTC

devote the necessary resources to finding a solution to the waste problems” it faces in

Azerbaijan and Georgia.

The development and implementation of a waste management strategy to EU standards for

both Azerbaijan and Georgia has proved one of the most challenging aspects of the ACG and

BTC projects, to which both BP and BTC continue to dedicate considerable resources. The

magnitude of the challenge faced by the projects, and the difficulties involved in full

compliance with the associated environmental and social commitments were underlined in

June 2004, when the ACG Phase 1 Lender Group Independent Environmental Consultant

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(IEC) opened a level III non-compliance relating to the management of non-hazardous waste

at the Sangachal Terminal. In response, BP issued a competitive tender for the construction

and operation of a non-hazardous waste landfill that would comply with EU Landfill

Directive standards. The tender review is now complete, and an agreement has been awarded

for construction at an existing waste site to the west of Sumgayit. As the new landfill is not

expected to be operational until the fourth quarter of 2005, improvement works have also

been performed at the existing waste site at Sumgayit to ensure that sufficient capacity is

available for current ACG Project waste. These mitigating actions are expected to result in the

rescinding of the level III non-compliance at the next IEC review.

Non-hazardous waste from the BTC project in Azerbaijan is accumulated at the Central

Waste Accumulation Area at the Kurdamir Camp, for disposal by incineration. After a level II

non-compliance relating to incinerator emissions was opened by the IEC of the BTC Project

Lender Group, BTC has upgraded the continuous emissions monitoring equipment attached to

the incinerator. A further round of discontinuous monitoring is also planned at the incinerator

in April 2005, and at that time ambient air quality will also be measured to validate the

theoretical air dispersion model in use.

Hazardous waste generated by the BTC Project in Azerbaijan that is not suitable for

incineration, and all hazardous waste from the ACG Project is currently stored while work

continues to identify an acceptable solution for final disposal. As part of this effort, BP has

performed a technical and assurance assessment of the hazardous waste landfill site at

Sumgayit in Azerbaijan, constructed as part of a World Bank project to remediate mercury-

contaminated wastes from a local Chlor-Alkali factory. The site was assessed as meeting EU

standards for hazardous waste landfills, and BP is now working to ensure that it is also

operated in accordance with industry best practices, before it proceeds further.

In Georgia, disposal of non-hazardous waste from the BTC project remains a substantial

challenge. Until recently, waste generated by the pipeline contractor was incinerated at a unit

brought into Georgia for this purpose. However, despite significant improvements that have

been made to the incinerator, it still cannot be run in a manner compliant with EU standards,

leading BTC to conclude that for the remaining span of the project, it would be more

environmentally acceptable to dispose of such waste at a municipal site. The Ministry of the

Environment in Georgia has granted approval for the use of the Iagludja dump site for the

disposal of project waste in defined quantities, and in support of this decision BTC has

developed a conditioning plan for the site which outlines the steps needed for improvement in

the direction of compliance with EU standards. Recently, BP has expressed its willingness to

facilitate the creation of the first non-hazardous landfill in Georgia to comply with EU

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standards, and discussions with the Government of Georgia in this regard are ongoing. We

anticipate that this facility will be ready in 2006/7.

As in Azerbaijan, hazardous waste generated by the BTC project in Georgia is stored awaiting

identification of an acceptable long-term disposal solution. One option under consideration is

the construction of a hazardous waste management facility in Georgia to EU standards that

would become available to other users once disposal of all remaining project waste is

complete. BP has applied to the Georgian State Sanitation Supervisory Body for the permit

required before the Environmental and Social Impact Assessment (ESIA) for the proposed

waste management facility can be submitted, and the necessary public consultation begun.

Offshore, BP’s strategy for the disposal of drill cuttings currently exceeds the requirements of

the ACG Production Sharing Agreement, in that all non-water based mud cuttings, with the

exception of those produced from the Chirag platform, are either re-injected, or taken ashore

for disposal. Due to space and weight restrictions on the Chirag platform, it is not possible to

capture all the synthetic-based mud cuttings for re-injection or shipment to shore. However,

equipment upgrades have allowed for improvement in the separation of fluid from cuttings

prior to discharge, and further opportunities to reduce impacts have been sought. As CDAP

recommends, discharges to the sea of drill cuttings from the Chirag platform are now included

within BP’s Environmental Monitoring Strategy, and results from the most recent survey are

expected mid-2005.

Once on-shore, cuttings are treated using one of the two methods for which approval has been

received from the Azerbaijan Ministry of the Environment and Natural Resources (MENR).

Disposal by indirect thermal desorption has been in use since February 2004, and BP is now

working closely with the MENR regarding how waste streams from the desorption unit may

effectively be re-used. Recently, the MENR has approved a second disposal method –

bioremediation – for use at the waste site near Serenja village, close to the Sangachal

Terminal.

BP and BTC are meeting the waste management challenges faced by their projects in

Azerbaijan and Georgia through innovation and investment. The common remedy –

construction by BP of new, EU-compliant waste management facilities – will enable

appropriate disposal of all types of project waste in the long term, and for the first time it will

also enable those other companies in Azerbaijan and Georgia that wish to dispose of waste in

an environmentally acceptable manner to do so, on commercial terms, using well-managed

EU-compliant waste management facilities.

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V. Regional Oil Spill Response

The Panel has examined in detail the systems and controls that BP has in place to prevent oil

spills from its platforms and pipelines, and also the plans that would be followed should an oil

spill occur. BP uses worst case scenario modelling to understand and plan for the total

impacts of oil spills, and one of the scenarios modelled – loss of well control, leading to a

blow-out – led the Panel to request that BP and its Partners in AIOC explore whether there are

“practical options to reduce the time it would take to halt the release of oil” that would

ensue.

BP is committed to ensuring that its wells are designed, drilled, completed, and maintained to

high and consistent standards. Its approach to managing well control is focused on prevention

through proper well design, operational procedures, and integrity of well control equipment.

The wells are designed and constructed with substantial redundancy to manage well control

events, and avoid the escalation that could ultimately lead to an uncontrolled blow-out.

However, in the extremely unlikely event that a blow-out does occur, BP has the contracts,

contingency plans, and defined resources in place to ensure that the appropriate response is

made in a timely and efficient manner.

The Panel also recommended that BP and AIOC work to ensure that a plan is developed that

addresses the scenario of a trans-boundary oil spill, in which a spill within the territorial

waters of one of the Caspian littoral states affects the territory of another. Development of a

trans-boundary oil spill response plan requires the drafting and implementation of inter-

governmental agreements, an activity in which BP, as a private actor, has a necessarily

limited role. However, in a significant step in this direction, the EBRD has funded the

development of the Azerbaijan National Oil Spill Contingency Plan by the Norwegian

company Det Norske Veritas (DNV), and BP is following the progress made on this with

representatives of the Azerbaijan government, and also with the UK and US embassies in

Baku.

BP and BTC are also supporting negotiations between the governments of Azerbaijan and

Kazakhstan, with the aim that if the Sangachal Terminal and BTC pipeline is used for the

transhipment of oil from Kazakh oil fields, then international HSE standards are incorporated

into the international treaty that would be required, as the Panel recommends, in particular

with respect to standards for Caspian shipping.

The oil spill response plans developed by BTC for use in Azerbaijan and Turkey have been

approved by the governments of both countries. Approval of the Georgian oil spill response

plan is currently being sought from the Georgian government. These plans, which are

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available from the Caspian Development and Export web site, were acknowledged in the

independent Oil Spill Response Plans Final Expert Response as being “in accordance with

conventional international practice and exceeding international best practices in a number of

key areas”. BTC has also taken the unprecedented step of making public the Final Expert

Response, a significant move towards greater transparency in this area. In Turkey, BTC has

developed a specific oil spill response plan for the BTC terminal at Ceyhan, which is adjacent

to the existing BOTAŞ terminal handling oil from the Iraq-Turkey pipeline. BTC is now

actively encouraging BOTAŞ to use it as best practice within their existing terminal, as the

Panel suggests.

In January 2005, BTC completed construction of the first of its stand-alone oil spill response

bases in Georgia, in the Tsalka region. Additional bases will be built in Tblisi, and also in the

Kodiana region, and a community awareness programme regarding pipeline safety and oil

spill response, which includes television info-mercials, billboard advertising, and regular

public information meetings, is underway to ensure that the local government and citizens of

Kodiana and Borjomi are appropriately consulted and involved, in fulfilment of a Panel

recommendation in this area. This programme will intensify as the date for commencement of

operations approaches. The Borjomi Information Centre is being used for as a venue for

dissemination of a wide variety of project information covering such topics as route selection,

construction activity, land compensation, and monitoring and security, as well as pipeline

safety and public information relating to oil spill response.

VI. Kodiana

The eighteen kilometres between the Tskhratskaro and Kodiana Passes in Georgia are some

of the more sensitive of the pipeline route. The route crosses the support zone of the Borjomi

Kharagauli National Park, including areas of human population and activity, and also lies

within the surface water catchment of the Borjomola River.

The decision to route the BTC pipeline through this area was endorsed by the Government of

Georgia and taken after an extensive evaluation of potential alternatives, in which a balance

was struck between such criteria as impact on the surrounding area, successful reinstatement

potential, wider environmental and social issues, geohazard and terrain assessment,

constructability, long term integrity, and the need to minimise route length. However, routing

options were also constrained by a decision of the Government of Georgia to reject, on

security grounds, any pipeline route crossing the Akhalkalaki district, to the south of Borjomi.

The desire of the Georgian Government to avoid this area, which contains military facilities

of the Russian Federation, was not at the time made public, and so when the final routing

decision was announced externally, this constraint was not explicitly referenced.

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The Panel considered in depth the routing of this section of the pipeline, and while it has

commented that “a greater effort by both BP and the Government to stress these political

constraints publicly would have enhanced confidence in the route ultimately selected”, it also

accepts that this route “would have been chosen even with a more fulsome debate over the

options”.

The Kodiana section of the pipeline route was further scrutinised when, in July 2004, the

Government of Georgia notified BTC of a two-week suspension of construction on this

section of the pipeline so that it might conduct its own evaluation of the particular security

measures being put in place. The discussions that followed between BTC and the Government

resulted in the construction of additional measures to protect the pipeline, and the signing of

agreements - fully in keeping with the VPs -on a grant program for Georgia and on the

provision of non-lethal security equipment, facilities and operations funding relating to

pipeline security. The texts of these agreements have been made public, and BP and BTC

regard the Grant Agreement, and its public disclosure, as a model for making commitments of

this kind to a Government in a manner that is transparent and auditable.

The first payment under the Grant Agreement has now been made, and Deloitte and Touche

has been selected to audit the first quarterly report on project activity and expenditure, which

is now expected from the Georgian Government.

The Grant Agreement complements the other BP and BTC sustainable investment activities

underway within the Borjomi region. The initial project of the Greater Borjomi Initiative,

managed by GTZ as a pilot project under the RDI (as discussed above), has now been

extended until June 2005. The goal of the initiative, to provide social and environmental

benefits to the region through improved waste management, is being achieved through a two

pronged approach of public awareness campaigns targeting the populations of Borjomi and

Bakuriani that emphasise the importance of proper waste collection and disposal, backed by a

program of clean-up works in the Borjomi region itself. Further projects under the Greater

Borjomi Initiative are being discussed with GTZ.

The BTC/SCP Community Investment Programme has also been operating in the region,

supporting project-affected communities through capacity building activities. These have

included the creation of numerous demonstration farms, which have since been able to

provide supplies of potato seeds to other farms in the region; provision of training in grant

proposal development, planning, and civil rights and responsibilities; and also community

mobilisation through the formation of community-based organisations. Work has also taken

place at Bakuriani under the Improved Schools Programme, to rehabilitate the school

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building, provide improved heating equipment, and install solar power to improve the

reliability of the school’s electricity supply. We have also opened an information office in

Borjomi to offer local residents a single point of contact should they wish to raise concerns

about the pipeline’s construction or operations.

Implementation of the pipeline security agreement is also underway. The first annual payment

into the pipeline security operating expenses fund has been made, and work is proceeding on

temporary and permanent secondary containment measures, and the special relief tank

required by the Georgian Ministry of the Environment, as the Panel mentions, to ensure that

should an oil spill occur in the region, it is properly contained and mitigated.

VII. BOTAŞ Performance

In Azerbaijan and Georgia, BTC has a direct relationship with the contractors that it has

chosen to construct the BTC pipeline, and its associated facilities. However, in Turkey, under

the terms of the Lump Sum Turnkey Agreement (LSTK) the role of Managing Contractor is

performed by BOTAŞ, the state-owned Turkish pipeline transportation company. According

to this agreement, BOTAŞ, rather than BTC has responsibility for a wide variety of project

activities, including land acquisition and compensation; contractor selection management and

auditing; the design and construction of the pipeline, facilities, and the terminal at Ceyhan;

and ensuring that the various standards and commitments made within the Environmental

Impact Assessment (EIA) performed in Turkey are met.

The Panel has expressed its concern on a number of occasions that the extra distance

introduced by the LSTK between BTC and those contractors engaged in construction activity

will reduce BTC’s ability to ensure that the commitments made within the EIA are honoured,

and will increase the likelihood that corners may be cut on environmental, social, and

technical standards in order that the project remain on schedule, and in budget. Indeed, the

Panel has characterised the LSTK as presenting “BP with the most significant challenge it has

in Turkey”.

In its most recent report, however, the Panel highlights the “numerous reports of constructive

teamwork between BTC and BOTAŞ” that it has received from both parties, and comments on

the “effective working relations” that are developing between the leadership of BOTAŞ and

BTC. BP has been treating its relationship with BOTAŞ in the spirit of a public and private

partnership, and through this partnership, BP believes that it has already helped both BOTAŞ

and the Turkish Government to “demonstrate to the EU and the international community that

they are fully capable of hosting, and participating in investments that meet or exceed the

most stringent international environmental, social, technical, and human rights standards”.

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Regular Project Review Board meetings, introduced in January 2004, allow senior

management of BP, BTC and BOTAŞ to meet together with the Turkish Minister of Energy

and his delegation to discuss project progress and review performance.

BTC was particularly pleased that the Panel has praised the quality of the reinstatement work

that it witnessed along some sections of the pipeline route during its visit to Turkey in 2004.

However, the Panel was concerned that due to pressures of time, the remaining reinstatement

work may not be performed to a similarly high standard. The EIA commits BTC to full

reinstatement along the Right of Way, and to fulfilling all the measures described within its

reinstatement plan, and so BTC will emphasise the quality of the reinstatement required when

it inspects project areas as part of the provisional acceptance process, prior to contractor

demobilisation, and so ensure that BOTAŞ performs any remedial work required as a

condition of acceptance under Work Completion requirements, during the warranty period

that follows. The quality of the reinstatement work performed is also monitored quarterly by

the Project Lender Group IEC.

Similarly, BTC has developed an Integrated Plan for reinstatement of those sections of the

Eastern Anatolian Natural Gas Pipeline that run parallel to the BTC Right of Way. The Plan,

based on detailed surveys performed in the summer of 2004, was submitted to the BTC

Lender Group in December 2004.

BTC has also made significant progress in resolving outstanding claims for compensation

resulting from construction activity. All “Article 27” cases brought by BOTAŞ under the

expedited process used for land entry when the land owner is deceased with many heirs,

absent, or amicable agreement could not otherwise be reached have now been closed, except

for those associated with minor route changes. As each of these cases was closed, a

corresponding new case was opened under “Article 10”, through which the courts decide the

amount of land compensation required, and determines the share of each shareholder. Closure

of these, and other “Article 10” cases will necessarily follow the requirements and procedures

of Turkish law. BOTAŞ and the Designated State Authority continue to provide logistical

support for court activities, and at the end of March 2005 reported significant progress in

closing out those cases that remain, with payments now made to 8,616 of the 9,312 affected

private and customary land parcel owners. Compensation agreements have also been signed

with 47 of the 48 fishermen affected by the reduced access to fishing areas in the vicinity of

the Ceyhan terminal, with the amounts agreed placed into interest bearing bank accounts to

which the fishermen can gain access at any time. In November 2004 and January 2005,

Ankara University conducted surveys at BTC’s behest to monitor the impact of reduced

access to the fishing areas. These surveys have shown that the compensation packages and

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other mitigations such as local employment and procurement have increased household

incomes by 40% on average, compared to pre-project levels.

Where BTC project standards were not being met, project management have taken

appropriate action. In its letter to Lord Browne in December 2004, the Panel raised its

concerns about the length of open trench in Turkey, which ‘created safety risks for the local

communities, imposed hardships on farmers and ranchers along the right of way’. The Panel

hoped and expected that BTC management ‘continue to monitor this issue closely’. While the

Panel has praised the progress made by BTC in 2004 to reduce the length of the various

segments of open trench within Turkey to less than 20 kilometres, to meet obligations made

under its financing arrangements, BTC has also committed to continue to monitor the length

of open trench to ensure that these obligations are met for the remainder of construction.

These efforts have been recognised in the recent lender IEC report, which acknowledged the

response of the project to implement open trench protocols in all three Lots and the fixed

installations.

BP and BTC have also taken a wider role in encouraging BOTAŞ and the Turkish

government to adopt the same range of standards and commitments made for the BTC

pipeline when building those extensions to the Turkish domestic national gas supply system

required to supply the BTC pump stations. Although the PT1 gas supply line is part of the

Turkish distribution system, BP and BTC have encouraged both BOTAŞ and the government

of Turkey to implement Resettlement Action Plan principles when acquiring the route that the

gas supply line has taken. Following BTC’s recommendation to BOTAŞ, the University of

Ankara conducted land valuation along the supply line route, identifying both formal and

informal land users who were compensated by BOTAŞ, and consulted on land issues together

with land teams from the Designated State Authority

BP continues rigorously to comply with the Panel’s recommendations that “BP, through its

leading role in BTC continue to use its leverage including (if necessary) stoppage of work, to

ensure that BOTAŞ fulfils the commitments BP and BTC have made in the EIA”, and that “BP

and BTC continue to work to ensure that BOTAŞ and its contractors remain fully aware of

and committed to fulfilling their obligations under the various project management plans”.

VIII. Decommissioning

As the Panel observes, the best international practice with regard to the disposition of offshore

facilities is in constant evolution, and alternative commercial uses for specific facilities that

cannot presently be foreseen may have a considerable bearing on what will constitute the

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most environmentally friendly option available, once all recoverable oil and gas reserves have

been produced.

The Panel recommends, and BP agrees that “all new off-shore facilities should be designed

and constructed to make feasible their entire removal upon abandonment”. In line with BP

policy, and also with the requirements of the ACG Production Sharing Agreement (PSA), BP

ensures that the best practices and standards from the international petroleum industry are

followed during the design of new offshore facilities. These include the 1992 OSPAR

Convention on the protection of the Marine environment of the North East Atlantic and

subsequent OSPAR Commission updates such as the OSPAR Decision 98/3 detailing a new

regime for the decommissioning of disused offshore installations, as well as the 1989

International Maritime Organisation guidelines. When abandonment plans are developed, UK

Department of Trade and Industry guidance notes will also be referenced.

In line with the recommendations of the Panel, BP has set in motion the development of an

abandonment cost estimate, for completion in 2005, some years before production from ACG

is expected to reach the point at which the PSA requires an abandonment fund to be created.

IX. Land Acquisition and Compensation

Land acquisition for the pipeline corridor stretching 1760 kilometres between the Sangachal

and Ceyhan terminals is an enormous and complex undertaking, which has directly affected

an estimated 17,716 households, and is subject to the land ownership norms of three

countries. BP is gratified that the Panel acknowledges the “thorough and equitable way” in

which land acquisition has been approached, noting that land compensation is the “single

most important tangible benefit many individuals will receive from both the BTC and SCP

projects”.

No households have been, or will be relocated as a consequence of the pipeline projects, but

nevertheless, BTC has developed a Resettlement Action Plan (RAP) in compliance with

World Bank Group guidelines. The RAP describes the compensation arrangements in place

for land owners, farmers, herders, and other land users, and ensures that economic impact, for

example for land improvements, or for lost crop production over the period of pipeline

construction, are properly compensated, with the aim, as the World Bank guidelines describe,

of “assisting project affected peoples in their efforts to improve their former living standards,

income earning capacity and production levels”, or “at least to restore them”. A RAP fund

was established to cover those cases where local law does not provide for compensation, such

as where the projects impact on communally used resources, such as forests and village

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grazing lands in Georgia and Turkey, and the case of the fishermen affected by reduced

access to fishing areas close to the Ceyhan Marine Terminal.

The effectiveness of the RAP is monitored externally by an independent three person expert

panel (the “SRAP Expert Panel”), established in accordance with RAP procedures and also

CDAP recommendations, to ensure that the plan is being complied with; to verify that the

measures required to restore or enhance the quality of life of project affected people are being

implemented, and to gauge their effectiveness; and to assess the extent to which the quality of

life and livelihoods of affected communities have been restored. BP and BTC have also

worked extensively during the land acquisition process with NGOs that specialise in land

issues. In Georgia, the Association for Protection of Landowners’ Rights has been involved in

the entire land acquisition process, while in Azerbaijan, the Centre for Legal and Economic

Education has been similarly involved. In Turkey, the Rural and Urban Development

Foundation (RUDF) has been monitoring the land acquisition process against RAP principles

since September 2002.

The Panel has commended BP and BTC for their work in land acquisition, stating that it is

“impressed with the overall approach BP and BTC have taken and with the essential fairness

of the BTC land acquisition process”. However, it has also made a number of

recommendations regarding how the process could further be improved, and outstanding

issues resolved.

The Panel echoes the concerns of some NGOs that land agreements in Azerbaijan and

Georgia were being entered into too quickly, leaving insufficient time for proper review of

key documents by the land owners, or the NGOs that advise them. In Azerbaijan, concerns

were also raised over use of the Latin script in the agreements, as although all official

documents must be written in this script, some Azerbaijanis read the Cyrillic script only.

BTC, in line with the Panel’s recommendations, has used its arrangements with the APLR

and the CLEE to enable the relevant documents to be reviewed and amended if necessary, and

also made available in the Cyrillic script where needed. The SRAP Expert Panel notes in

August 2003 that in Azerbaijan, the small number of people who “reported difficulties in

reading Latin script indicated that with assistance from family members, CLEE, or the joint

land acquisition team, they had been able to understand the content”.

Both the Panel and the SRAP Expert Panel consider the risk of corruption and extortion

resulting from the size of compensation payments received by some affected individuals and

communities. BTC has followed the CDAP Panel’s recommendation to work closely with

local authorities and NGOs to try to reduce this risk, and is gratified to note that in its report

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of July 2004, the SRAP Expert Panel regards the “low incidence of attempts to extort

unofficial payments from project affected people [as] a notable achievement of the Project”.

The mechanism for distribution of compensation for communal grazing grounds proved to be

a source of division amongst affected communities in Georgia, prompting BTC, at the Panel’s

suggestion, and also in response to concerns expressed by the SRAP Expert Panel in its

August 2003 report, to extend its agreement with the APLR to enable it to advise on this

issue. Land acquisition in Georgia is now complete, except for the resolution of some

remaining issues around the Georgian government’s annulment of land registration in

Tabatskuri village.

After construction finishes, BP, BTC, and SCP have pledged that the land acquired, except

that needed for above ground facilities and access roads, will be returned to the use of the

original land owners, subject to minor restrictions needed for pipeline safety. In Azerbaijan,

this can be accomplished through the use of leases. In Georgia, however, no similar legal

framework exists that would allow BTC to lease and return the land to individual owners,

subject to the required conditions of use. Consequently, BTC has purchased outright all

property along the Georgian section of the pipeline Right of Way, and is now working with

the Georgian authorities, as both CDAP and the SRAP Expert Panel recommend, to determine

the most effective way of returning land use, while ensuring that the rights needed to operate

the pipeline in a safe and effective manner are retained. In Turkey, BTC is working with

BOTAŞ and the Designated State Authority to ensure that an effective strategy is in place for

the return of use rights to former land owners, and that the signing of land exit protocols will

be accompanied by an awareness campaign regarding land usage restrictions upon both the

temporary and permanent pipeline corridors, and their surroundings.

BTC and BP are also aware of concerns expressed by some international NGOs, and echoed

by CDAP, regarding the impact of land acquisition, and other project activities on vulnerable

groups in Turkey, especially on Kurdish speakers and women. The Panel has recommended

that “BP work with BOTAŞ and the other Project Participants to ensure that ongoing

consultations, grievance procedures, and land acquisition activities remain open and

accessible to Kurdish speakers and women along the pipeline corridor”. A core principle of

the BTC project is that all communities along the pipeline route are treated the same,

regardless of ethnicity, language, religion or gender. The Environmental Impact Assessment

conducted in Turkey and the RAP specify additional mechanisms such as separate meetings

for women, employing female community liaison officers and Kurdish speaking personnel

(although surveys and consultation meetings have confirmed that Turkish is spoken and

understood by all affected people) to ensure these groups are not marginalized. The SRAP

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Expert Panel notes in February 2004 that the compensation measures outlined in the RAP

“have been adequately implemented, mostly through the RAP Fund”.

In Georgia, BTC has taken a number of actions based on recommendations of the SRAP

Expert Panel regarding the effectiveness of community liaison, which relate to the subsequent

CDAP recommendation to “explore ways to strengthen the CLO team, particularly in

Georgia”. Actions taken since January 2004 have included doubling the size of the CLO team

in Georgia to eight members, adding two experienced expatriate field social supervisors;

instituting regular field coordination meetings; increasing coordination with the land team to

improve resolution of land related grievances; and regularly reviewing the Construction

Contractor’s grievance logs, amongst others. To address the Panel’s recommendation that

“the CLOs remain on staff well into the operations phase”, BP and BTC are undertaking a

thorough internal review of their community relationships, including the very valuable role

that CLOs have to play, as part of a wider program of work within BP that examines

engagement with civil society along the entire length of the pipeline route. This work, which

also considers those stakeholder engagement mechanisms used by BP elsewhere in the world,

will lead to an approach to relationship building with civil society that ensures transparency

for the public, and is appropriate to countries with developing non-governmental sectors. It is

expected to be complete in the second quarter of 2005.

In December 2004, the Panel highlighted the number of complaints received in Georgia by

the IFC Compliance Advisor/Ombudsman (CAO), and recommended that BP and BTC

“consider structural changes to the grievance mechanism” used to resolve land and

constructions complaints arising from the communities. While BTC acknowledges that there

have been a comparatively high (compared to Azerbaijan and Turkey) number of complaints

raised with the ombudsman, it does not believe that the number of complaints is a

consequence of the merits of the grievance mechanism itself. Nevertheless it continues to seek

out opportunities for improvement, and has recently had a number of detailed discussions

with the ombudsman’s office. The July 2004 SRAP report notes that the project’s response to

grievances has improved significantly over the year, as a result of the changes to team and

management practices. Since that time, closure of grievances has further improved. As of the

end of November 2004, over 65% of the land grievances have been closed (up from 25% in

July 2004) and over 85% of the construction related grievances have been closed (up from

50% in July 2004). In addition, BTC is reviewing grievances that have been rejected by the

Construction Contractor and, in a number of cases, finding in favour of the complainant.

On November 2nd 2004, after extensive discussion around the merits of the existing

grievance system, the CAO and the IFC agreed with BTC that a higher-level appellate system

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is not appropriate or necessary at this stage, and that no further evaluation of this alternative

was needed until the SRAP Panel review of progress in resolving grievances is complete, in

early 2005. We will revisit the CAO’s recommendation at that time.

X. Conclusion

BP and BTC greatly appreciate the work undertaken by the Panel, and thank its members both

for their diligent and considered approach and for their recommendations, suggestions and

views. That so many of the Panel’s recommendations have now been implemented

underscores the value and importance attached to them within both companies.

BP and BTC share the Panel’s vision that the Caspian projects have the opportunity to

“create a model for investments in extractive industries that will leave a lasting positive

legacy in the host countries” and believe that the work of the Panel is a valuable addition to

the unprecedented – and continuing – level of consultation, public scrutiny and engagement

which has characterised these projects to date.

Both companies would like to take this opportunity to thank the Panel’s secretariat and the

individuals and organisations who have offered their own opinions, insights and expertise

directly to the Panel, and look forward to working with all those who have an interest in

ensuring the successful completion of the BTC pipeline and other Caspian projects, during

2005 and beyond.

Progress in these matters, and in the other areas on which the Panel has commented will be

presented in the next BP Progress Report, to be released in 2006.

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cdap progress report - march 2005

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