Chirag Early Oil fields, Azerbaijan

On November 20, 1994, a consortium of oil companies signed a contract with Azerbaijan . The consortium Azerbaijan International Oil Corporation (AIOC), led by British Petroleum, will invest USD eight billion in oil production over a 30-year period. It was agreed that the consortium will develop the Azeri, Chirag and Guneshli wells in the Caspian Sea at a cost of USD 7.4 billion. The consortium believes that it can extract up to four billion barrels of oil from these three wells and since April 1999 the Early Oil project has involved the production and transportation of 100 000 to 150 000 barrels of oil per day to the Black Sea Coast.

The Chirag Early Oil project was the first large-scale oil project in the Caspian Sea region to actively involve the World Bank's private lending arm the IFC and the EBRD in the Caspian Great Game, with investments totaling USD 200 million in the project. According to the EBRD, this type of "Long-term financing provided by the EBRD and IFC has not been previously available to the region and the commitment of the EBRD and IFC will send a positive signal about project financing in the region".

The banks also committed to ensure the use of only Best Available Technologies for the project. However the consortium has used the �?Best Available Technology Not Entailing Excessive Costs', far removed from the Best Available Technology practices commonly used in developed countries.

Environmental problems

The project's environmental problems are still pending. There are many environmental concerns that have been raised by NGOs since the project's early days and the following requirements are still not in force:

• The re-injection of drilling waste into the sub-sea formation

• The use of non-synthetic drilling muds during all project stages

• The need to upgrade and re-direct proposed land-based pipeline routes

• An assessment of cumulative greenhouse gases emissions.

Since 1997, when the Chirag Platform-1 began to operate, it has generated wastewater that is discharged into the Caspian Sea. While the EIA states that the problem of wastewater treatment will be investigated and that "water will be discharged 50 metres below the Caspian mean level to prevent damage to the productive biological zone," right now all cuttings, wastewater, and synthetic drilling solutions are being discharged directly into the sea. Another environmental problem stems from the project sponsors' decision to use mainly synthetic water-based muds, which have highly toxic impacts on aquatic life, and which are already banned in the North Sea . The underwater pipeline terminates in the seabed spawning grounds of sturgeon. This is all having a direct negative impact on the sturgeon and salmon populations, and causing the deaths of a great number of seals.

Another area of concern is the construction of the Western Route Export Pipeline (WREP) that passes through five conservation areas, as well as near designated protected areas. It crosses more than 27 watersheds, creating the possibility of leakage or rupture near a watercourse or other sensitive area. Regarding the new Supsa Terminal, located near Kolkhety wetland, which is protected under the Ramsar convention, a baseline environmental study stressed that the "Kolkhety reserve is situated in one of the most sensitive areas adjacent to Paliastomi Lake, and the Supsa terminal may have a potential impact on unique wetlands communities and Kolkhety Forests. Therefore, it is strongly recommended to enlarge the territory of the reserve."

One accident has already occurred on the Northern route pipeline in 1997, when 1 000 tonnes of oil were accidentally discharged from a corrosion hole. Due to several so-called technical accidents like the uncovering of the pipeline, land slope oil transportation through the Northern Route as well as the Western Route Pipeline was stopped for a number of days in 1998-1999.

A number of oil spills have also occurred on WREP. About two tonnes of oil spilled over an area of up to 100 square kilometres in western Georgia on May 5, 2002. According to reports, the pipeline was damaged by oil poachers. Transportation was stopped for two days. A recent oil spill happened in October 2005, where around 60 tonnes of oil spilled out near the village of Norio, close to the Gardabani reserve. According to the company the spill was reportedly caused by a rupture of a pipe caused by a group of individuals.

Transparency issues

The decision-making process over environmental standards for the project was largely non-transparent, typified by the fact that the EIA was a shell document representing the findings of other studies that until then had not been made available to citizens or to the public finance institutions backing the project. There was also agreement that critical environmental decisions over issues such as the discharge of production waste and oil spill response plans were being decided through an opaque process over which the banks and citizens had no oversight.

The disclosure of relevant information included in Annex 1 of the EIAs and monitoring studies was a condition laid down by the banks. However, experiences regarding the implementation of this have been quite negative, especially in terms of documents that were prepared after the loan disbursement, such as environmental monitoring reports and oil spill response plans.

In Georgia, where there is a more developed civil society, NGOs forced BP's local office to share its oil spill response plans for the country. However, in Azerbaijan, where an oil spill could result in an ecological tragedy in the Caspian Sea, the AIOC is keeping a tight lid on its plans. The lack of transparency and public participation in these high-risk oil projects could lead to environmental problems that increase financial and political risks, including precisely the kinds of risks that publicly owned institutions like the IFC are supposed to ensure against. On top of this, until now the annual environmental monitoring report has not been made available to the public.

For more information contact Manana Kochladze, the Bankwatcher from Green Alternative, Georgia, monitoring the project's development.