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ECGD's internal assessment of the BTC pipeline
BPU Review made public after Information Tribunal

first published 11 August 2009

After the BTC Consortium, led by BP, formally asked the UK's export credit agency, ECGD, for financial support for its BTC oil pipeline project, ECGD's Business Principles Unit (BPU) assessed the potential environmental and social impacts of the project. The BPU's findings and recommendations were critical to ECGD's issuing significant financial guarantees for the project in February 2004.

When The Corner House put in an information request for a copy of the BPU's report, it was refused. Only after appeals and counter appeals was the information finally released in August 2009.

Background

In November 1998, BP chief executive John Browne stated publicly that the BTC pipeline could not be built unless government provided "free public money" to do so.1 The company obtained the major proportion of such money from the International Finance Corporation (the division of the World Bank that lends to companies rather than governments) and the European Bank of Reconstruction and Development (EBRD). But BP also asked other public financial institutions that lend taxpayers' money for support, including export credit agencies from several European countries and the USA.

In the UK, the BTC Consortium, led by BP, formally asked the UK's export credit agency, ECGD, for financial support some time after May 2003 (although it seems to have had sounded out the Department informally the previous year). ECGD deemed the project to have a High Potential Impact Project and tasked its Business Principles Unit (BPU) with assessing the project's potential social and environmental impacts and carrying out 'due diligence' on the application.

The Corner House and its colleagues in the Baku Ceyhan Campaign submitted detailed evidence for the BPU's assessment, documenting the project's failure to date to comply with the ECGD's stated policies on environment, development and human rights. This evidence included:

  • the results of in-depth on-the-ground fact finding missions to the three countries affected, particularly details of unlawful expropriation of land for the pipeline, corruption in the expropriation process, inadequate compensation and intimidation of affected villagers and project critics.
  • testimonies from pipeline workers, alleging major breaches of standard quality assurance practices, including inadequate record keeping, and evidence that faulty welding has been permitted to go un-repaired.
  • a Memorandum of November 2002 outlining major concerns relating to:
  1. denial of Public Purpose;
  2. regional development and poverty alleviation concerns;
  3. debt implications of Host Government Agreements;
  4. the Turnkey Agreement and IMF loan ceilings;
  5. overwhelming Georgia's institutional capacity and undermining the transition to democracy;
  6. corruption concerns;
  7. legal implications of Intergovernmental and Host Government Agreements, particularly concerns over conflicts with international law, EU law and Turkey's accession undertakings;
  8. pipeline security, human rights, conflict and militarisation of the region; and
  9. violations of World Bank Safeguard Standards on consultation and ethnic minority issues.

The BPU made its assessment and submitted it for a meeting of ECGD's Underwriting Committee on 5 December 2003, which decided on 17 December 2003 to support the pipeline. In February 2004, ECGD formally issued £81,703,893 ($106 million) in guarantees to the BTC project - the largest guarantee issued in 2003-04.

The public outcry led the Trade and Industry Select Committee of the UK Parliament to hold an inquiry in 2004 into ECGD's due diligence on the BTC project. ECGD thus provided the Committee with a copy of its BPU Review of Baku-Tbilisi-Ceyhan Pipeline Project, dated 3 December 2003, on a confidential basis. From this, the Committee concluded that the BPU Review had been critical to the Underwriting Committee's decision to authorise ECGD support for the pipeline.

But in making its own report in April 2005, the Select Committee rejected ECGD's reasoning for refusing to make this BPU Review public (or to allow the Committee to do so), describing it as unconvincing and unsatisfactory:

"It should have been possible for ECGD to demonstrate how it had considered all of the concerns raised during the consultation exercise on this project without betraying commercial and political confidences." (report, paras 17 and 19)

Submitting a Freedom of Information Act (FOIA) request

Because of this refusal, on 8 August 2005, The Corner House submitted an information request to ECGD asking for the BPU's internal assessment and for details of meetings and correspondence that discussed it:

i) A copy of the Business Principles Unit's Assessment Report on the BTC project as prepared for ECGD's Underwriting Committee;

ii) A list of all meetings held to discuss the BPU's assessment report, including attendees;

iii) All notes and/or minutes of meetings held to discuss the BPU's assessment report, including any written comments or appraisals;

iv) All correspondence with BP and/or BTC Co relating to the BPU's assessment report.

On 13 December 2005, ECGD replied releasing request ii) and confirming for request iv) that it did not hold any such correspondence. But for request i), ECGD released only part of the BPU Review, leaving out (redacting) whole sections, particularly the BPU's own assessments of the project's environmental and social impact. ECGD refused request iii) in its entirety, to disclose the minutes of the Underwriting Committee of 5 December 2003. In its reply, ECGD stated that:

"it is important that the BPU is able to provide ECGD management with full and frank opinions on the environmental, social and human rights risks of a potential project and recommend such conditions in ECGD guaranteed loans as are necessary to take account of such risks. Disclosure of parts of the BPU's assessment would jeopardise this, as officials would inevitably be more circumspect in their views in future, undermining the integrity of the Department's underwriting process."

For the Underwriting Committee minutes, ECGD said:

"It is important for the quality of decision making that ECGD's committees are able to discuss projects openly and are able to frankly debate issues relating to projects that ECGD is considering supporting. Disclosure of the minutes of this meeting would make committee members less likely to contribute fully to debate contributions if they perceive there to be a risk of minutes of meetings being wholly or selectively quoted from, reduce the likelihood that discussion would be properly documented and increase the likelihood of discussion taking place in an informal or undocumented manner."

Overall, ECGD considered that the public interest in invoking various exemptions under the Freedom of Information Act and exceptions under the Environmental Information outweighed the public interest in disclosure.

The structure and contents of the redacted version of the BPU Review indicate clearly that one of the Review's principal purposes was to respond to the many concerns about the BTC pipeline raised by NGOs. It covers a wide range of issues: involuntary resettlement and compulsory land acquisition, damage to cultural and historic sites, child labour, minority or vulnerable groups, use of armed security guards, water pollution, wildlife and habitats, degradation of land, waste generation, atmospheric pollution among others. For each issue, the BPU Review sets out a summary of the issue, a summary of NGO comments and an assessment by BPU -- and it was these assessments that were redacted.

Asking ECGD to carry out an internal review

On 8 February 2006, The Corner House requested that ECGD conduct an internal review of its decision not to release the full BPU Review (particularly the BPU assessments) and to withhold minutes of the Underwriting Committee meeting of 5 December 2003.

The ECGD carried out such a review, but still concluded on 14 November 2006 that it would still not release the substantive part of the redacted BPU Review, citing not only the same grounds as before but also adding those of commercial interest and breach of confidence. The majority of the information was withheld on the basis that disclosure would adversely affect the frankness and candour of internal discussions in future and that the public interest in not disclosing the information outweighs that in disclosing.

Complaining to the Information Commissioner

The Corner House thus complained to the Information Commissioner on 20 December 2006 via the legal team of Friends of the Earth. (The Information Commissioner, an independent UK authority set up to uphold information rights in the public interest by promoting openness by public bodies and data privacy for individuals, enforces and oversees the Freedom of Information Act and the Environmental Information Regulations.)

The Corner House argued that there was "an exceptionally strong public interest" in disclosing the information requested because of:

* the very large sums of taxpayer money involved;

* the need for careful scrutiny of how ECGD discharges its export credit functions, especially its respect of its business principles and compliance with national and international policies, laws and regulatory frameworks; and

* the particular nature of the BTC project.

UK taxpayers are ultimately responsible for ECGD's losses and need to know that ECGD's risk assessments, particularly of High Impact Projects, are rigorous enough to safeguard public funds. BP itself had asserted back in 1999 that the pipeline was commercially unviable, while ECGD admitted that the project was politically-driven ("Essentially the route is uneconomic, but the US have put a significant amount of political capital into the project").2 Moreover, as the pipeline passes close to seven different war zones, inadequate attention to political risks -- for example, those arising from terrorism, conflict and tensions with local communities -- could translate into economic risks for the taxpayer. The Underwriting Committee was believed to have translated some of the BPU assessments into conditions attached to ECGD's financial support.

The Information Commissioner accepted the Complaint and began its own investigation on 11 September 2007. As part of this, ECGD showed the Commissioner the information being withheld and discussed with them the reasons why it should not be disclosed.

Nevertheless, on 28 July 2008, the Information Commissioner found in favour of The Corner House, stating that "ECGD must disclose in full both the report and the relevant sections of the minutes." The Commissioner decided that the exceptions to the Environmental Information Regulations did not apply and that the public interest in disclosing the information was greater than that of withholding it.

The Commissioner also "severely criticised ECGD's excessive delay in responding to the request", which he described as "extremely poor performance" and criticised the Department for its "cavalier disregard for the procedures set out in the legislation" (para. 31).

ECGD appealing against Information Commissioner

A month later, on 21 August 2008, it was ECGD's turn to appeal against the Information Commissioner's decision, arguing that the Commissioner had wrongly concluded where the balance of public interest lay in the case.

The appeal was heard in court nearly a year later on 6-8 July 2009. ECGD submitted a "Skeleton Argument" outlining what it believed to be the legal grounds for not disclosing the information, together with a Statement of Facts and a Chronology of the case.

The Information Commissioner (whose decision ECGD was appealing) laid out their legal reasons why the decision should stand in their own Skeleton Argument.

As the appeal was between ECGD and the Information Commissioner, The Corner House had registered an interest as an Additional Party to the case. It presented a detailed Witness Statement to the appeal, explaining "why there is such a strong public interest in disclosure of the information at issue in this appeal," putting the particular documents in the context of:

  • public concern over the adverse impacts of projects that ECGD supports;
  • ECGD's international undertakings in relation to sustainable development and financial risk management;
  • ECGD's decision making procedures to assess environmental and social risks; and
  • financial risks associated with the environmental and social impacts of the BTC oil pipeline project.

The Information Tribunal took place over three days, 6 July, 7 July, 8 July 2009.

During the Tribunal, ECGD argued that it could not release some information because to do so would damage international relations (particularly the UK's relationship with Turkey). But lawyers acting for The Corner House pointed out that that the Foreign & Commonwealth Office had already released to Friends of the Earth similar information in response to an information request: a "flash report" of a field visit by ECGD staff to the pipeline area documents their initial observations -- including scathing criticism of BP's partner company in Turkey, BOTAS, which ECGD describe as lacking "consistency, transparency and honesty".

In the middle of the third day, therefore, ECGD abandoned the main part of its case: its objections to disclosing some BPU assessments and minutes on the grounds that they were "internal communications". As the Information Tribunal subsequently observed, the ECGD:

"was fiercely criticised by the other two parties [Information Commissioner and The Corner House] for having persisted with its broad ranging opposition against disclosure for almost four years since the original request had been made."

ECGD still maintained its position that a few parts of the assessments should be redacted because disclosure would aversely affect international relations or the course of justice.

Given ECGD's turnaround, the Information Tribunal decided on 11 August 2009 to uphold the Information Commissioner's decision of 28 July 2008 and dismissed ECGD's appeal. But the Tribunal also decided that ECGD was justified in withholding some passages from the BPU Review and the Underwriting Committee's minutes. The Tribunal stated that ECGD should make the BPU Review and Minutes, with the few permitted redactions, available to The Corner House within 28 days.

ECGD thus released the BPU Review with only minor redactions.

FOIA release: ECGD’s BPU Review

ECGD has always stated that the BTC pipeline complies in all material respects with the World Bank's safeguard policies; when ECGD issued its guarantees in February 2004, it was ECGD policy to require all the projects it supported to adhere to these policies (a requirement rescinded in 2010).

But the BPU Review shows that the BTC project arguably breached the World Bank's requirements on environmental impact assessment because the site of the oil terminal on the Mediterranean Sea near Ceyhan had been predetermined: Turkey insisted that it be there and nowhere else. Alternative locations for the oil terminal were not properly considered (including the alternative of the project not going ahead at all) as required under World Bank rules. (Para 8 of the World Bank's rules on Environmental Assessment stipulate that the assessment must examine the project's potential negative and positive environmental impacts and compare them with those of feasible alternatives, including the "without project" alternative.) The BPU Review states that "insufficient information had been provided to justify the location of the terminal."

The BPU Review contains no assessment of the conflict-related risks to human rights associated with the project, even though the pipeline passes in or near seven existing conflict zones, including South Ossetia and Armenia. The minutes of the meeting held on 5 December 2003 by the ECGD's Underwriting Committee to discuss the BTC project do address conflict-related risks -- but solely from the point of view of risks to the pipeline project, not to the human rights of those living along its route. This lack of assessment is at odds with ECGD's commitment in its Business Principles (scrapped in 2010) to ensure that projects supported accord with the UK's human rights obligations. (The Corner House had written previously to ECGD expressing its concerns about this.) (See also Underwriting Committee Basic Case details.)

The BPU assessment contains no discussion of concerns raised by the sub-contracted engineering firm Parsons about the coatings for the field joints on the pipeline.

ECGD's lawyers also released a legal opinion that the export credit agencies (ECAs) considering supporting the BTC project in 2003 had requested from Freshfields solicitors. The request was:

"to identify those environmental laws in each of the three Project States [Azerbaijan, Georgia and Turkey] that could potentially be breached by the BTC Project but for the operation of the Host Government Agreements (HGAs) and the Intergovernmental Agremeent (IGA)." 

As a 6 August 2003 ECA Memorandum on environmental law breaches accompanying the legal opinion points out, "because of the operation of the HGAs [signed between the company and each country] and the IGA [signed by the three countries], BTC Co. cannot be held liable for a breach of local environmental law that contains environmental standards that are 'different from or more stringent than'" the standards in the HGAs and IGA -- in effect, a list of environmental laws from which the pipeline project was legally exempt.

The opinion lists a range of such laws relating to surface and groundwater pollution, the protection of natural areas, the restoration of land and natural resources following construction, damage to human health, soil erosion, and wetland protection. Several of these laws contain standards that are higher than those in EU legislation.

The environmental legislation for Turkey from which the BTC Project is exempt includes that enacting Turkey's obligations under the international Convention on Wetlands of International Importance especially as Waterfowl Habitat (the Ramsar Convention). The Ceyhan oil terminal is only 30 kilometres or so away from the Yumurtalik Lagoons Nature Reserve, which was designated a significant Ramasar site in July 2005. Any oil spill would threaten these wetlands.

BP has consistently denied that it sought and obtained exemptions to local law.

ECGD's lawyers also released a response from lawyers in Turkey working with Freshfields to the response of BTC Co. to this list of environmental law breaches, focusing on water issues. 

Another ECGD Briefing of May 2003 "flags up" the main issues "raised by this complex project", including climate change impacts, route selection, host government agreements, security arrangements, and environmental and social impact assessments. The document states "ECGD understands the pragmatic need to avoid identifying any groups as an 'indigenous peoples'". Doing so would have meant that additional World Bank and other policies and safeguards would come into play.

1 BP Chief Executive Officer John Browne, quoted in "Wisdom of Baku pipeline queried", Financial Times, 4 November 1998, p.4.

2An October 1999 telegram from the Foreign & Commonwealth Office (FCO) (released to Friends of the Earth following an information request) reported BP as saying the following of the pipeline's "current commercial viability":

"traditional pipeline economics will not make B-C [BTC pipeline] happen now -- it needs tangible commitment by those who have long espoused the geopolitical imperatives ie. the US and regional governments." (p.3)