Pipeline Dreams: The World Bank, Oil Development and Environmental Protection in Georgia

By Kochladze, Manana | Multinational Monitor, May 2002 | Go to article overview
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Pipeline Dreams: The World Bank, Oil Development and Environmental Protection in Georgia


Kochladze, Manana, Multinational Monitor


TBILISI, GEORGIA -- "This is not just another pipeline; it is a strategic framework that advances America's national security interests. It is a strategic vision for the future of the Caspian region." So said Bill Richardson, energy secretary during the Clinton administration, about oil and gas pipeline construction from the oil-rich Caspian Sea through Georgia and Turkey.

Caspian Sea oil reserves are believed to be at least as large as those in the North Sea, which currently supply about 8 percent of the world's oil, and the West has taken an enormous interest in this valuable resource of the old Eastern bloc.

The Bush-Cheney U.S. National Energy Policy calls for supporting the development of new oil exploration around the Caspian region, with emphasis on a Georgia-Turkey pipeline.

But this is no unilateral U.S. pipeline dream. The World Bank and other international financial institutions have worked intensely since 1994 to insure private investments and provide political risk mitigation for the oil sector in the South Caucasus through institutional, policy and legal reforms. According to a World Bank policy paper, "the involvement of public sector agencies can give a unique degree of protection to private investors -- a so-called 'halo effect' that should have particular value ... in the Caspian region, where capital market access is fragile and relations with foreign governments highly important for geo-strategic reasons."

Oil development will boost Georgia's economy, according to the Bank. "Development of the region's oil and gas resources has the potential to deliver significant and sustained economic benefits to Georgia," explained Judy O'Connor, country director for Georgia at the World Bank, in a July 2001 letter.

The Bank's International Finance Corporation and the European Bank for Reconstruction and Development helped fund the Early Oil pipeline project, with a new oil terminal on the Black Sea. This $2 billion project involves development of oil from a Caspian Sea offshore field; the construction of related production facilities in Sangachal, Azerbaijan; and construction of two pipelines from Sangachall terminal, one which connects to the existing pipeline near the Russian border (the Northern Route Export Pipeline), the other a new western pipeline through Azerbaijan and Georgia (the Western Route Export Pipeline); this latter pipeline connects to a new storage terminal at Supsa, Georgia and an offloading facility on the Black Sea. The pipeline is operated by the Azerbaijan International Oil Company consortium, which is headed by British Petroleum.

The Bank argues it can facilitate oil development in a socially and environmentally sustainable manner. In March 2002, the World Bank began implementation of a new Energy Transit Institution Building project that is intended to enhance the country's capacity to negotiate and implement oil and gas transit agreements, while minimizing social and environmental harms. With the Bank's International Development Association providing more than three quarters of the $12.26 million budget, the project will fund consulting services and technical assistance related to environmental assessments, contract negotiation, financial audits and oil spill prevention.

The Bank, along with the Global Environmental Facility (an intergovernmental funder of environmental projects, administered by the World Bank) and the European Union, has also funded an Integrated Coastal Zone Management Program and the establishment of Kolkhety National Park. The Kolkhety Lowland portion of the Georgian Black Sea Coast is a highly valuable and ecologically sensitive hotspot of biodiversity with intact wetlands and the unique Kolkhety Forests.

But East European environmentalists says the Bank is merely paying lip service to environmental protection, and that its small environmental loans are dwarfed by -- and in direct conflict with -- its large-scale, long-term support for oil development.

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Pipeline Dreams: The World Bank, Oil Development and Environmental Protection in Georgia
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