IFC Invests in Caspian Oil and Pipeline Projects

The Board of the International Finance Corporation (IFC), the private sector arm of the World Bank Group, yesterday approved lending to the Baku-Tbilisi-Ceyhan (BTC) pipeline and the Azeri-Chirag-Deepwater Gunashli (ACG) Phase 1 oil field.

The BTC pipeline is a dedicated crude oil pipeline system, which will extend from the ACG field through Azerbaijan and Georgia to a terminal at Ceyhan on the Mediterranean coast of Turkey.

The pipeline can transport up to 1 million barrels per day, and at 1760 kilometers is one of the longest of its kind in the world. The BTC pipeline will complement oil transport from two existing pipelines—the Northern Route pipeline to Novorossiyk, Russia, and the Western Route pipeline which ends in Supsa, Georgia—whose transportation capacity is limited.

The BTC pipeline will transport oil from landlocked Azerbaijan to the port on the Mediterranean Sea, bypassing the environmentally sensitive Black Sea and the Bosphorus Straits.

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.

The ACG Phase 1 oil field involves developing 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.

Linking small- and medium-sized enterprise (SME) development to the construction and operation of the pipeline has also been an important part of the project, which aims to benefit SMEs and smaller companies. Some 10,000 jobs are expected to be created during the pipeline construction and some 850 during operations.


DevNews spoke with Shahbaz Mavaddat, IFC’s associate director, who has been leading the ACG and Phase 1 and BTC projects.

The extractive industries is one the hottest topics in development today, and the World Bank Group is currently reviewing its extractive industries guidelines. How do you feel about putting such a high-profile project in front of the Board?

Extensive consultations have taken place for this project, which represents a number of best practices, including requirements for transparency, a regional review, and the implementation of multi-stakeholder forums in six cities in the three countries.

These projects are not only in compliance with our current guidelines and policies, but in many cases exceed the requirements. Over the next few months, management will discuss with the Board its response to the extractive industries review and any related policy issues.


The first oil was just pumped through the Chad-Cameroon pipeline last summer. How does the BTC project compare with the Chad-Cameroon pipeline?

Chad-Cameroon set a number of benchmarks, and this project has set additional benchmarks. Of course, the experience of Chad-Cameroon has been very much used and relied on for this project. I was also responsible for that project for IFC, and a number of the people who worked on Chad-Cameroon are involved now as well, including some of the environmental experts.


What are some of these benchmarks?

First of all transparency. This is the only project of its kind—all government-related documents have been disclosed: the production-sharing agreement, the intergovernmental agreement, the post-governmental agreement. Also, a regional review has been conducted that touches on issues which are well beyond the project and well beyond the control of the sponsors. These include issues of corruption and human rights.

We have, of course, applied the experience of Chad-Cameroon in setting up the monitoring layers. All of IFC best practices have been used as well. Among other development programs are significant community and social investment programs, put into practice by the sponsor.


Considering the current geopolitical landscape, has this project presented unusual difficulties?

The activist opposition has been the same for both Chad-Cameroon and BTC. It is very curious that many activists who were objecting to Chad-Cameroon at one time, are now holding it up as an example of what and how things should be done. We are taking pretty much the same steps here, and in some cases more.

We, as the World Bank Group, try to do things if they make sense from the perspective of development. What counts is whether these projects will make a difference to people’s lives, and we think they do.


In putting together this project, what has been the most challenging, and rewarding, aspect?

Implementing best practice in environmental and social standards has been challenging, because we are dealing with a reputable operator who is also very proud of its responsible practices. For us to say that something needed to be done even better for it to come up to our standards was challenging, but we were able to negotiate things through and improve on existing practices.

The structuring of the deal under our leadership was also very successful. The World Bank Group and the European Bank for Reconstruction and Development were the first organizations to be engaged by the sponsor, prior to all other lenders. We were brought in to negotiate a very complex deal and broker sensitive issues with the governments, given our access and credibility.


From the Chad-Cameroon example, it seems that the World Bank Group took more heat for the project than the commercial companies involved did. How do you think companies view partnership with the Bank?

There are several reasons why the World Bank plays an important role in these types of projects. First we lead and bring in other financiers who rely on our best practices.
Also, we are among a few, perhaps the only institution, with significant experience in cross-border deals. We know the countries. We can deal with governments. Implicitly, we bring political risk mitigation because of who we are, because of our knowledge. In terms of social and environmental aspects, we set benchmarks and provide a stamp of approval. The companies know it is not easy for them to obtain our assertion that a project complies with our safeguards policies. But once they achieve compliance with our safeguards, they know they will have the approval of one of the most reputable entities in the world and they know there is substance behind it.

To sum up, what we bring is a combination of mobilizing money, political risk mitigation, additional lenders, and, importantly, environmental and social leadership.