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IFC Board Approves Investments in Caspian Oil and Pipeline Projects Expected high development impact with environmental, social, and transparency safeguards


In Washington D.C.:

Corrie Shanahan

Phone: (202) 473 2258

Mobile: (202) 294 4697

Email:
cshanahan@ifc.org

Ludwina Joseph

Phone: (202) 473 7700

Email:
ljoseph@ifc.org


Washington, D.C., November 4, 2003 – The Board of the International Finance Corporation, the private sector arm of the World Bank Group, today approved investments in the Azeri-Chirag-Deepwater Gunashli (ACG) Phase 1 oil field and the Baku-Tbilisi-Ceyhan (BTC) pipeline.

The ACG Phase 1 oil field involves the development of an oil field off Azerbaijan in the Caspian Sea. IFC’s investment in ACG Phase 1 consists of loans of up to $30 million for its own account and further loans of up to $30 million to be commercially syndicated. The total project cost of ACG Phase 1 is approximately $3.2 billion.


The BTC pipeline is a dedicated crude oil pipeline system, 1760 kilometers long, with a capacity of 1 million barrels per day.  The pipeline will extend from the ACG field through Azerbaijan and Georgia, to a terminal at Ceyhan on the Mediterranean coast of Turkey. IFC’s investment in the BTC pipeline consists of a loan up to $125 million for its own account and a loan of up to $125 million in commercial syndication. The total project cost of BTC is approximately $3.6 billion.  


Azerbaijan is expected to generate $29 billion in oil revenue over the next 20 years, when the full phases of the ACG fields are developed. From the two proposed projects, pipeline transit revenues to Georgia are expected to be approximately $500 million. Turkey is expected to earn $1.5 billion from pipeline and terminal operations, transit fees, and upstream investments.


Some 10,000 jobs are expected to be created during construction and around 850 during operations.  Indirect jobs are also expected through local sourcing and additional economic activities. IFC, together with other partners, has a program in all three countries to help local companies and entrepreneurs benefit from related economic activities. The program includes technical assistance to service and supply companies, leasing activities, the development of local consultancy capacity in the provision of business services, and the development of new financial products aimed at improving access to capital for small and medium enterprises. It also builds on IFC’s existing investments in microfinance and provides expertise and assistance in business activities related to biodiversity, energy efficiency, and corporate governance. The program includes dedicated IFC staff on the ground working with local companies.


The preparation of the two projects marks a milestone in IFC’s continued drive for excellence in environmental, social, financial and governance practices and builds on the successes and experience of the Early Oil project in Azerbaijan and Chad-Cameroon petroleum and pipeline project. In particular, the projects break new ground in transparency, environmental and social safeguards, community consultation and involvement, national and international civil society engagement, and local economic benefit.


“These are sound projects that have achieved a lot of transparency.  For example, the projects’ Host Government Agreements, Inter-Governmental Agreement, and Production Sharing Agreement were made public, which is a first in a project of this nature. And Azerbaijan’s oil revenues will be made transparent, partly due to the World Bank Group’s assistance in establishing the State Oil Fund of Azerbaijan,” said Rashad Kaldany, director of the World Bank Group’s Oil, Gas, Mining, and Chemicals department.


Revenues from the oil and gas projects in Azerbaijan will be placed in a state oil fund, which will be audited by the international firm Ernst and Young and disclosed to the public. The oil fund currently has a balance of approximately $787 million from previous projects.


IFC has worked closely with the project sponsors and other lenders in reviewing and preparing the project, to ensure the application of best practices, including in financial, technical, legal, and environmental and social areas, all of which are key to mobilizing significant private and institutional investments in three countries.


Mr. Kaldany added that the projects include nine layers of monitoring – four internal and five external—that will result in seven different reports being made public.  “IFC believes this level of monitoring and transparency is unprecedented and provides the correct balance of internal monitoring verified by external, independent monitoring and public disclosure for the BTC.  It also demonstrates that the project sponsors and the lenders will focus on implementation challenges and results on the ground.”



Regarding the pipeline’s route, Mr. Kaldany said that “IFC has heard from a number of environmental groups who have raised significant concerns with regard to routing options, particularly through the Borjomi area in Georgia.  Routing options were carefully assessed by IFC staff and independent environmental and technical experts, who confirmed that the route chosen was the only viable one with the significant mitigation and protection measures proposed in this area.”


IFC has also listened closely to various stakeholders: for example, it held six Multistakeholder Forum meetings, together with EBRD, in the three affected countries in August and September this year.


“These have been challenging projects where IFC has benefited from its experience in structuring complex cross-border projects in other difficult environments. In this context, IFC hears from international NGOs regularly.  So, it was gratifying to hear directly from local NGOs and local communities.  It is clear that local people want the pipeline to be built – but they want it built in a safe, sustainable, and environmentally sound way,” said Shahbaz Mavaddat, associate director of IFC’s Small and Medium Enterprise Department.


He added that “IFC also heard that local people and communities want and need community development in order to improve their lives.  That’s why the ACG sponsors, BTC and IFC are working hard on generating local benefits through community investment programs, linkage programs, and small and medium enterprise development.”  


At 1,760 km, the pipeline is one of the longest of its kind in the world. It crosses 17,700 land parcels but no households are displaced. Extensive consultation with affected communities has been undertaken by BTC and verified by IFC. Compensation packages for land, which are consistently above market rates, have been set and are independently monitored.


More information about the ACG Phase 1 and BTC projects, as well as on the multistakeholder forums and response to criticism of the project, can be found at
www.ifc.org/btc

The mission of IFC (www.ifc.org) is to promote sustainable private sector investment in developing countries, helping to reduce poverty and improve people's lives. IFC finances private sector investments in the developing world, mobilizes capital in the international financial markets, helps clients improve social and environmental sustainability, and provides technical assistance and advice to governments and businesses. From its founding in 1956 through FY03, IFC has committed more than $37 billion of its own funds and arranged $22 billion in syndications for 2,990 companies in 140 developing countries. IFC's worldwide committed portfolio as of FY02 was $16.7 billion for its own account and $6.6 billion held for participants in loan syndications.