Revised Final Statement on Complaint under OECD Guidelines for Multinational Enterprises
Background and history

Summary

In March 2011, the UK Government ruled that the consortium led by oil multinational BP is breaking international corporate social responsibility rules in operating its Caspian BTC oil pipeline.

The ruling follows a Complaint lodged under the OECD Guidelines for Multinational Enterprises by six environment and human rights groups back in April 2003. The Revised Final Statement states that BP failed to investigate and respond to complaints from local people of intimidation by state security forces in Turkey guarding the pipeline.

The ruling sets a major precedent. In future, multinationals should take into account the human rights context in which they operate if they are to comply with the Guidelines.

The ruling potentially places BP in breach of its contracts with international financial institutions that backed the project with taxpayers' money in 2004. Although the OECD Guidelines are voluntary, BP gave a legally-binding commitment to these institutions that the BTC project would comply with them.

Background and Chronology of Complaint

The 1,760 kilometre-long Baku-Tbilisi-Ceyhan (BTC) oil pipeline runs from the offshore oil fields in the Caspian Sea near Baku in Azerbaijan, through Georgia's national park and close to the town of Tbilisi, finishing south of Ceyhan on the southern shores of Turkey on the Mediterranean at a tanker terminal, where the oil is loaded on to supertankers that transport the oil to Western Europe.

Construction of the pipeline by a consortium of oil companies, led by British oil multinational BP, started in May 2003 after 13 years of negotiations and preparations (see Timeline). The preparations laying the legal groundwork for the project included agreements between the consortium and the governments of the three countries (Host Government Agreements) signed in 1999 and consultations with the people over whose land the pipeline would cross to negotiate compensation.

In 2002, from June to September, local and international public interest groups conducted fact-finding missions to the pipeline areas in Azerbaijan, Georgia and Turkey. Their detailed reports indicated grave concerns about irregularities involving the consultation process about the pipeline's route and availability of documents; land expropriation and compensation; and intimidation over freedom of expression. Within Turkey, the reports noted particular issues affecting substantial numbers of Kurdish people.

2003

Just one month before construction started, in April 2003, six public interest organisations (including The Corner House) ¹ lodged a Complaint against BP alleging breaches of six OECD Guidelines for Multinational Enterprises intended to encourage "good corporate behaviour".²

The Complaint alleged that the Consortium had:

• exerted undue influence on the regulatory framework;
• sought or accepted exemptions related to social, labour, tax and environmental laws;
• failed to operate in a manner contributing to the wider goals of sustainable development;
• failed to adequately consult with project-affected communities on pertinent matters; and
• undermined the host governments' ability to mitigate serious threats to the environment, human health and safety.

The UK's National Contact Point (NCP) – a government office established to promote adherence to the Guidelines³ – accepted the Complaint and asked BP to respond.

Under the OECD Guidelines (which are not legally-binding⁴), the NCP does not act as a court of law and adjudicate over the rights and wrongs of actions, but aims instead to resolve Complaints by acting as a mediator between the parties involved and to issue forward looking statements outlining what action parties might take in future. As an NCP review stated subsequently, "It is the basic aim of the NCP process to attempt to bring parties together to resolve Complaints mutually." Information shared and correspondence between the parties and the National Contact Point cannot be disclosed to others without permission of the parties (for this reason, many documents referred to below are not publicly available).

2004

In March 2004, BP denied all the points made in the Complaint, which prompted the groups to submit to the NCP in November 2004 a detailed rebuttal of BP's response. The rebuttal included procedural concerns arising from the UK government (which would rule on the Complaint) now having a financial interest in the BTC pipeline since the UK's export credit agency, the Export Credits Guarantee Department (ECGD) announced in February 2004 support to the BTC Consortium worth £81,703,893 ($106 million), the largest guarantee issued in the 2003-04 financial year.

2005

The significant factual differences between BP and the groups that emerged from these exchanges, particularly over the impacts on local people, prompted the NCP to visit the region of the pipeline in the three countries from August-September 2005. His October 2005 report indicates that several villagers made specific complaints to him during his visit about their intimidation by Turkish state authorities.

The NCP hosted a dialogue meeting in October 2005 between the groups and BP to discuss the NCP's field visit and report. At this meeting, BP agreed to undertake its own field research to investigate the specific complaints made by villagers to the NCP during his field visit, and to report back in November 2005.

2006

BP sent a report back to the NCP in 2006 of its own investigations but refused to let the Complainants see it on grounds of confidentiality.

The NCP compiled a draft statement on the Complaint, which it circulated to the parties, who submitted their comments and corrections.

2007

Nevertheless, in August 2007, the National Contact Point issued a Final Statement on the Complaint, dismissing all the alleged breaches of the OECD Guidelines, making no recommendations for the future, not clarifying differences between factual information proved by the groups and that by BP, and not giving any reasons or justifications for its conclusions. It appeared to rely on the confidential BP report stating that the majority of claims raised by villagers with the NCP lacked any basis.

The groups appealed (via solicitors Leigh Day & Co) in September 2007 to the NCP's Steering Board, arguing that the Final Statement was procedurally flawed because it relied on the BP report that the company had refused to send to the organisations. (The OECD Guidelines stipulate that all information concerning a Complaint should be seen by both parties). The appeal argued that the NCP's involvement with them had been "one-sided, limited and partial, and wholly fails to meet basic standards of fairness or natural justice". It stated that the NCP had conducted itself throughout with "conspicuous unfairness", favouring the commercial organisations involved at every stage.

The NCP acknowledged "some procedural failings" and withdrew its August 2007 Final Statement in December of that year.

2008

In March 2008, the NCP agreed to a review of the whole Complaint process. In April 2008, the groups submitted a detailed report on the flawed and biased procedures the NCP had followed in handling the Complaint:

• the NCP had failed to engage critically with the issues or to justify positions taken in the Final Statement;
• there was improper interference and influence in the Complaint process by BP;
• the NCP failed to act fairly and misdirected itself on confidentiality;
• the NCP breached its undertakings to the groups to disclose a copy of the Final Statement prior to its publication for comment by all the parties involved;
• the NCP failed to disclose or assess the evidence received from third parties (such as other government departments, including information supplied by the Foreign Office on the lack of emergency oil response plans in Azerbaijan).

The NCP's Review Committee met in June 2008 and in July 2008 found that the UK NCP had indeed acted unfairly by not giving the complainants the opportunity to comment on the BP report. The Committee recommended that:

• the original Final Statement be withdrawn and reconsidered in the light of the review;
• BP be asked to reconsider consenting to share its 2006 report checking out the NCP's field visit with the Complainants;
• in the absence of such consent, the NCP consider to what extent it could rely on the report in reaching its final decision;
• the revised Final Statement set out in balanced terms the positions of the parties and the reasons for the UK NCP's conclusions on the points it considers relevant for its decision.

In October 2008, BP did finally agree to disclose the report to the Complainants – but refused to permit its disclosure to the Complainants' partner in Turkey to enable them to check its facts on-the-ground.

2009

In February 2009, the NCP facilitated mediation between the parties, which resulted in BP agreeing to its report being released to a Turkish-based human rights group that was mutually acceptable to all the parties involved.

The BP report stated that the complaints made by villagers to the NCP during his August 2005 visit had been investigated and resolved. The Complainants, through on-the-ground fact checking in Turkey, including video testimonies from villagers, questioned the truth of such statements, resulting in several exchanges submitted to the NCP by the Complainants and by BP over several months.

(In February 2009, the groups drew up some "lessons learned" from their experience of the Complaint procedure and engagement with the NCP, which were submitted to the NCP and its governing structures.)

2011

The Revised Final Statement of 22 February 2011 (but released publicly on 9 March 2011) now accepts that BP breached the OECD Guidelines in its consultation and grievance process:

"the company failed to identify specific complaints of intimidation against affected communities by local security forces where the information was received outside of the formal grievance and monitoring channels, and, by not taking adequate steps in response to such complaints, failed to adequately safeguard against the risk of local partners undermining the overall consultation and grievance process."

The Revised Final Statement recommends that BP "consider and report on ways that it could strengthen procedures to identify and respond to reports of alleged intimidation by local pipeline security and other alleged breaches of the Voluntary Principles".

Both parties are asked to provide the UK NCP with a substantiated update within three months on the company's progress towards meeting the UK NCP's recommendation.

The ruling sets a major precedent. In future, to comply with the OECD's corporate social responsibility guidelines, multinationals will have to take into account the human rights context in which they operate, including the risk of intimidation, when designing and implementing corporate grievance mechanisms. Such mechanisms need to be robust enough that people can report intimidation without fearing further reprisals.

Given BP's legally-binding commitment in May 2003 to ensure that the BTC project complies with the OECD Guidelines,⁵ the ruling potentially places the company in breach of its contracts with the major international financial institutions (IFIs) that backed the project with taxpayers' money in 2004. In addition to the UK's export credit agency, these include the International Finance Corporation of the World Bank, the European Bank for Reconstruction and Development (EBRD) and other European and US export credit agencies.⁶

Even though the ruling states "the company's activities in this particular region were not in accordance with Chapter V paragraph 2(b) of the Guidelines", (p.2.), The Guardian newspaper reported that BP rejects the claim that the BTC project breached the OECD's Guidelines. BP "does not accept that in that area [of Turkey] BTC Co's activities were inconsistent with the OECD Guidelines", the company stated to the Business & Human Rights Resource Centre.

The Complaint in other countries

Back in April 2003, the Complaint was submitted not only to the UK's National Contact Point, but also to those of France, Germany, Italy, Belgium and the USA – all OECD member states – because their export credit agencies or banks had supported the BTC pipeline financially in some form.

Because the lead company in the BTC Consortium, BP, is British, the NCPs in the other countries collectively decided in 2004 that the UK would "take the lead" in handling the case. Despite this understanding, the UK NCP decided unilaterally in 2005 that it would deal only with the UK Complainants, thereby excluding others from participating in the process except as observers. The UK NCP did not communicate this decision to the other NCPs until January 2006 – at which point the Complaints in the other countries reverted to their national NCPs.

The Complaint continues to be assessed in Italy, although the Italian NCP has indicated it will take its lead from the UK, except in those areas where the Complaint has been expanded since it was originally submitted to include aspects relating to the Host Government Agreements. (Further information can be disclosed only when the Italian NCP has reached a final decision.)

The French and German NCPs have now rejected the Complaint, while no progress has been made in the USA. The Belgian NCP declared the Complaint against Belgian banks eligible to be considered under the OECD Guidelines, but forwarded it to the UK NCP on the grounds that the main actor in the BTC project, BP, is, a UK company, thereby closing the case in Belgium. But the UK NCP (unofficially) stated that it would not evaluate the role of the Belgian banks and thus the case remains in limbo.

References

1Friends of the Earth (England and Wales), Milieudefensie (Friends of the Earth Netherlands), The Corner House, Baku Ceyhan Campaign, Platform and Kurdish Human Rights Project (KHRP).

2The OECD Guidelines for Multinational Enterprises provide recommendations in the areas of employment and industrial relations; environment; combating bribery; consumer interests; competition; and taxation. Multinational enterprises operating in or from Organisation for Economic Co-operation and Development member states are expected to adhere to them.

The OECD Guidelines were revised in 2000, giving NGOs the right to submit complaints against OECD-based companies. Complaints are submitted to the relevant country's National Contact Point (NCP) – a government office established to promote adherence to the Guidelines.

3In the UK, the National Contact Point (NCP) is a civil servant based within the Department for Business, Innovation and Skills (formerly the Department for Trade and Industry).

4In response to this Complaint, however, in May 2003, the BTC Consortium and the governments of the three countries through whose territory the pipeline passes (Azerbaijan, Georgia and Turkey) issued a legally-binding undertaking to ensure that the BTC project complies with the OECD Guidelines and the Voluntary Principles on Security and Human Rights (an international code of conduct for multinationals operating in the energy sector).

See "Joint Statement on the Baku-Tbilisi-Ceyhan Pipeline Project", 16 May 2003, http://subsites.bp.com/caspian/Joint%20Statement.pdf

Voluntary Principles on Security and Human Rights

5In a statement to the UK Parliament on 12 January 2005, Lord Sainsbury, then Under Secretary for Trade and industry, stated: "BTC Co is contractually committed to complying with the guidelines".

6Some 70 per cent of the estimated US$4 billion costs of developing the BTC pipeline was financed and subsidised by public money or public institutions. The bulk of the public money was in the form of loans from the European Bank for Reconstruction and Development (EBRD) of $250 million and the World Bank's International Finance Corporation (IFC) of $250 million.

Export credit agency (ECA) guarantees for the pipeline included:

Japan's JBIC $580 million

USA's Ex-Im $160million

Japan's NEXI $120 million

UK's ECGD $106 million

France's COFACE $100 million

Germany's Hermes $85 million

Italy's SACE $50 million

The US Overseas Private Investment Corp (OPIC) provided an additional $142 million in political risk insurance.