Who Should Regulate the Baku-Tbilisi-Ceyhan Pipeline?

[Chavushian]

Who Should Regulate the Baku-Tbilisi-Ceyhan Pipeline?

Georgetown International Environmental Law Review (Washington, DC)
Spring 2004
Volume 16, Issue 3
pg. 403, 17

By Christopher P.M. Waters

CONTENTS

I. INTRODUCTION

The roughly U.S. $3 billion Baku-Tbilisi-Ceyhan (BTC)
pipeline project is intended to transport oil from the
Caspian Sea to the West. At a length of 1,090 miles,
it will be the world's longest export pipeline when
completed. The three countries over which the pipeline
will travel - Azerbaijan, Georgia, and Turkey -
desperately want the pipeline for economic reasons. So
too does the consortium of "big oil" and its
supporters among Western governments. The United
States in particular is keen to obtain non-OPEC oil
and at the same time avoid transport through Russia
and Iran for geopolitical reasons.1 But the legal
basis for the pipeline has come under heavy criticism
from environmentalists, human rights activists, and
ordinary citizens of the region. They argue that the
agreements which have been put in place between the
three states and the oil companies insulate the latter
from the reach of national laws, including
environmental regulation and the protection of human
rights. This article aims to evaluate the claims of
opponents of the "pipeline regime" and consider the
obvious alternative, namely domestic regulation of
pipelines by Georgia, Azerbaijan, and Turkey. It
argues that while the pipeline regime is bad (and
amendments could only partially cure it), pure
domestic regulation of the industry would be worse.
The state of governance and the rule of law in the
South Caucasus, and to a lesser extent Turkey, would
make domestic governance impractical - scaring away
desirable investors and environmentally dangerous.

This article will also argue that environmentalists,
human rights activists, the oil industry, and Western
governments have common ground which they have
undervalued: the need to promote sustainable
development through better governance. In fact, the
lack of two key elements of governance - democracy and
the rule of law - have hugely inflated the financial,
environmental, and socio-political costs of the
pipeline project. Rather than allowing oil companies
to save money by avoiding "burdensome" regulation, the
lack of the rule of law has forced decisions that make
little commercial sense. The same goes for the lack of
democracy. Despite having political leaders in place
who are sympathetic to "big oil" interests, lack of
democracy has led to instability and costly measures
to mitigate the effects of the instability. To make
this clear, this article will take as a case study the
controversial routing of the pipeline as it passes
through Georgia.

The next section, Part II, outlines the pipeline
regime and criticisms of the regime from
environmentalists and human rights activists. Part III
then speculates on the starkest alternative to the
pipeline regime, namely domestic regulation. It
measures the domestic capacity for regulating the oil
and gas industry by using the sustainable development
rubric, and particularly the need for governance. The
case study presented in Part IV reflects on the
baffling - from both a sustainable development and a
financial "bottom line" perspective - decision to
route the pipeline through Georgia's environmentally
sensitive Borjomi Gorge area, rather than through the
safer and cheaper Javakheti area. Part V then
concludes with a discussion of the need for improved
governance in the South Caucasus before either
environmentally or financially sound decisions can be
made on hydrocarbon exploitation or transit.

II. THE PIPELINE REGIME AND ITS CRITICS

There are two related components of the BTC pipeline
regime. The first is an Inter-Governmental Agreement
(IGA) between the three states involved. The second is
Host Government Agreements (HGAs) between the states
and the BP-led oil consortium. Both the IGA and the
HGAs have sparked opposition, though the HGAs have
been the target of the most severe criticism and are
the focus of this section.2

The HGA concept is not new to this pipeline or indeed
to this region. From the beginning of post-Soviet oil
exploration in the Caspian region, variations on this
model have been used. The first HGA in Azerbaijan (in
that case called a Production Sharing Agreement or
PSA) was between the state oil company (SOCAR) and a
consortium of eleven major foreign oil companies known
as the Azerbaijan International Operating Company
(AIOC). The 1994 PSA has a term of thirty years and
covers the development of the Azeri, Chirag, and
deep-water Gunashi oil fields in Azerbaijan's sector
of the Caspian.3 Although this and other PSAs
concluded with Azerbaijan provide for environmental
protection measures, the PSAs require the oil
consortiums to comply with Azerbaijani environmental
and health and safety legislation only to the extent
that those standards are not more stringent than
international petroleum industry standards in place at
the time the PSA was signed. In Azerbaijan (similar to
the situation in other former Soviet states), the PSAs
have been rendered "international agreements."4 As
such, under a novel interpretation of Azerbaijan's
constitution, the PSAs take precedence over domestic
legislation, essentially constituting an opt-out for
large oil interests from some aspects of the standard
legislative regime for oil and gas exploitation and
environmental protection. From the oil companies'
perspective, PSAs give them "one stop shopping";
Azerbaijan's SOCAR is empowered to negotiate all
aspects of an oil deal and permission is not needed
from a myriad of ministries, agencies, and local
authorities. Furthermore, from one perspective, these
agreements mitigate the risk of investing in an
unstable region by insulating companies to some degree
from inefficiency or corruption in government and the
legal system.

The HGAs for the BTC pipeline similarly serve to
insulate and internationalize the project. The
following analysis is based on the Georgian HGA, but
the principles are applicable to the other two HGAs.5
The term of the HGA is forty years with the
possibility of extensions.6 Georgia makes a number of
grants and guarantees for the duration of this lengthy
period. These range from a "no-nationalization"
clause,7 extensive rights for the consortium to the
use of land and water,8 and a pledge not to interfere
with the operation of the pipeline. The clause
containing the non-interference provision explicitly
states that the government may not intervene on
environmental or health and safety grounds except as
an exceptional and temporary measure where the threat
level is "unreasonable."9 These provisions have raised
national sovereignty concerns. As one opponent puts it
in the Turkish context, there is now "a strip running
the entire length of the country, where BP is the
effective government."10

The HGA also sets out a "Code of Practice" with
respect to technical, environmental, social, and
health and safety matters. This code requires the oil
companies to meet industry standards, or at least
North American and Western European industry
standards." In places it explicitly refers to
standards promulgated by industry associations such as
the American Petroleum Institute and, with respect to
how to conduct an Environmental Impact Assessment
(EIA), European Union directives. Missing from these
external reference points, however, are international
or regional human rights instruments. The lack of
reference to these instruments is especially notable
with respect to the government's obligation to "take
all reasonable and prudent measures" to provide
security for the project.12 Given the poor human
rights records of Azerbaijani, Georgian, and Turkish
police forces, the failure to build internationally
recognized policing standards into the HGAs has
worried observers.13 What are the standards of
policing to be used in dealing with, for example,
protests against the pipeline or residents refusing to
abandon land destined for the pipeline? The human
rights concerns are accentuated with respect to
vulnerable groups affected by the pipeline's route -
such as Kurds in Turkey - who, it has been suggested,
have not been adequately consulted.14

More generally, the rights of all citizens affected by
potential environmental dangers may be infringed.
Amnesty International has argued that the general
prohibition on state intervention in the pipeline's
operation on health and safety grounds - except in
emergencies - may result in violations of the right to
life under the European Convention on Human Rights.15
Indeed the European Court of Human Rights' holding
that states must take reasonable precautionary
measures to prevent harm to citizen's health is easily
contrasted with the less stringent "imminent harm"
test set out in the HGA.16 Thus, while one treaty
obligation requires adherence to international human
rights norms, another "international agreement," the
agreement with the oil company provides an opt-out
from the treaty norms. It is not clear, in terms of
domestic law, which treaty or international agreement
will take precedence. The consortium has attempted to
allay concerns about human rights by executing a
unilateral "deed poll" which pledges, among other
things, that it will not seek compensation from
governments for actions which the latter may take in
compliance with international human rights treaties.17
This has been rejected by critics, however, on the
basis that the deed poll is not binding on the host
governments.18

Not only have some relevant international standards
been ignored in the HGA's text, the state also
contends that any future international commitments
which the country might make are not to be
automatically incorporated into the pipeline regime.
As the clause on environmental protection puts it
(with corresponding clauses on social impact and
health and safety having near-identical wording):

If any regional or intergovernmental authority having
jurisdiction enacts or promulgates environmental
standards or practices relating to the Facilities,
Pipeline Activities or areas where Pipeline Activities
occur, the MEP [Main Export Pipeline] Participants and
the Government will confer respecting the possible
impact thereof on the Project, but in no event shall
the Project be subject to any such environmental
standards or practices to the extent they are
different from, in addition to, or more stringent than
the Environmental Standards [as set out in the
appendix to the HGA].19

Thus the HGAs have the potential effect of freezing
present-day standards for a minimum of forty years.
Furthermore, the three states may be disinclined to
enter new international human rights or environmental
agreements - or inclined to make reservations to these
agreements - to avoid clashes with the HGAs.

But if there are grave problems with the HGA, is the
solution to revert to the default legal situation of
the host states having all the requisite powers to
regulate the construction and operation of the
pipeline? I would argue no. One argument for avoiding
"domestic only" regulation is the potential for loss
of investment.20 While it can not be discounted, this
argument is unpersuasive in its most basic form. Oil
companies are notorious for their willingness to
operate in hostile environments; there always seem to
be risk-takers available to invest in potentially
profitable oil ventures.21 One more realistic worry is
that the more socially responsible investors - those
who voluntarily strive to meet industry "best
practice" - may be frightened off.22 The biggest
problem with pure domestic or "in house" regulation,
however, is that the capacity of the region's states
to adequately regulate big business for the good of
citizens or the environment is doubtful. The next
section will explore this capacity.

III. CAN THE HOST STATES ADEQUATELY REGUEATE?

Different critics of the pipeline want different
outcomes. Some oppose the project altogether, some
want to see specific reforms, and some have argued for
a fundamental rethinking of the project with the
genuine involvement of citizens of the region in the
discussions. The best-organized and most vocal
opponent is the Baku Ceyhan Campaign (BCC). The BCC,
which is a coalition of NGOs as diverse as Friends of
the Earth and the Kurdish Human Rights Project, has
stated different goals at different times and in
different places.23 One thing the critics have
uniformly failed to do, however, is grapple with the
value of the primary alternative to the current legal
regime, namely domestic regulation of the pipeline. I
will argue in this section that scrapping the HGA
model altogether would be disastrous in terms of
attracting large scale investment to the region and
protecting the environment. For the moment at least,
only an HGA which immunizes and internationalises the
pipeline to some extent can both attract investment
and protect the environment in the region. To consider
the capacity of the region's states to adequately
regulate the oil industry - or any other industry for
that matter - in the absence of an HGA, the
sustainable development rubric provides a useful
measuring tool.

There is no universal agreement as to the definition
of sustainable development.

Nonetheless, the definition posed by the Brundtland
Commission in 1987 of "development that meets the
needs of the present, without compromising the ability
of future generations to meet their own needs,"24
retains currency and is sufficient for present
purposes. There is also no agreement over the extent
to which sustainable development is law. For some,
sustainable development principles are legally binding
norms - part of international customary law.25 Among
other things, proponents of this view point out that
sustainable development was adopted as a universal
value at the Rio Summit in 1992,26 and that this was
reaffirmed in 2002 at the World Summit on Sustainable
Development in Johannesburg.27 For others, sustainable
development has little or no legal content. Rather, it
is simply a worthwhile aspiration. Somewhere in the
middle of these perspectives is the view that
sustainable development is "soft law."28 For example,
the International Law Association has categorized
sustainable development as "an established objective
of the international community and a concept with some
degree of normative status in international law."29

While the soft law perspective is likely the most
accurate of the three positions, from the point of
view adopted here, it is unnecessary to say how firm
sustainable development is as a binding legal rule.
More useful for present purposes is to ask how
sustainable development informs law in the region and
whether or not law is capable of promoting sustainable
development. As one author puts it, the principles of
sustainable development perform a "guidance function",
and "it is by invoking these principles in domestic
and international legal regimes and decision-making
processes that law could contribute to the realization
of sustainable development."30

In terms of the content of sustainable development,
there are various baskets of principles that have been
put forward. While there is no fundamental
disagreement over what sustainable development
requires, there are different formulations of what are
core principles and what are secondary or procedural
principles. Three criteria will be addressed briefly
here: a) the EIA, b) public participation in decision
making, and c) governance.31 These are related
concepts commonly supported by Principle 10 of the Rio
Declaration:

Environmental issues are best handled with the
participation of all concerned citizens, at the
relevant level. At the national level, each individual
shall have appropriate access to information
concerning the environment that is held by public
authorities, including information on hazardous
materials and activities in their communities, and the
opportunity to participate in decision-making
processes. States shall facilitate and encourage
public awareness and participation by making
information widely available. Effective access to
judicial and administrative proceedings, including
redress and remedy, shall be provided.32

The first principle, the need for the EIA, has its
origins in U.S. lawmaking efforts in the 1960s. This
principle - or perhaps procedure - requires thorough
and timely analysis of likely environmental
consequences of new development projects and possible
alternatives or mitigating measures. The EIA
requirement is firmly enshrined in the legislation of
many states and international or regional regimes. For
example, a 1985 EEC Directive requires EIA for
projects "that are likely to have significant effects
on the environment."33 The second principle, the need
for public participation in decision-making, requires
public (NGOs, community groups, individuals) access to
information, decision-making and, if all else fails,
access to justice through the courts or administrative
bodies. The third and perhaps overarching principle,
governance, refers most obviously to democracy and the
rule of law, but also to effective bureaucracy, proper
use of discretion, and decentralization of
decision-making.34 Without good governance, states
cannot make and implement coherent domestic policy,
let alone implement internationally sanctioned
sustainable development principles on a national
level. With these three principles in mind, it now
remains to consider the ability of the region's states
to regulate the transportation of Caspian oil in a
sustainable manner.

It first must be noted that environmental protection
is clearly enshrined in all three states'
constitutions. Article 56 of the Turkish Constitution
explicitly sets out the state's duties, albeit in
vague terms:

Everyone has the right to live in a healthy, balanced
environment.

It is the duty of the state and citizens to improve
the natural environment, and to prevent environmental
pollution.35

The Georgian and Azerbaijani constitutional provisions
take different approaches. Article 39 of Azerbaijan's
Constitution provides both a substantive right to a
healthy environment and what might be called the
procedural aspects of that right:

Everyone has the right to live in a healthy
environment.

Everyone has the right to gain information about the
true ecological situation and to get compensation for
damage done to his/her health and property because of
violation of ecological requirements.36

This clause is patterned on the Russian Constitution
and is common to most CIS states' constitutions,
including those of oil producing Central Asia.37 The
Georgian Constitutional provision can be distinguished
from the CIS "boilerplate" by the presence of an
active duty to protect the environment as well as by a
more explicit reference to sustainable development.
The latter is found in the requirement for
inter-generational equity in the fourth paragraph of
Article 37:

3. Everyone has the right to live in a healthy
environment and use natural and cultural surroundings.
Everyone is obliged to protect the natural and
cultural surroundings.

4. The state guarantees the protection of nature and
the rational use of it to ensure a healthy
environment, corresponding to the ecological and
economic interests of society, and taking into account
the interests of current and future generations.38

In practice, explicit reliance on the constitutional
right to a healthy environment by parties before
courts or administrative bodies is rare. In Georgia
and Azerbaijan, the constitutional provisions are
largely hortatory, at least for the moment. There is
some hope that with cases from Georgia and Azerbaijan
starting to go to the European Court of Human Rights -
the first application from Georgia was declared
admissible in September 2003 - constitutional rights
will be taken more seriously within the two South
Caucasian countries.39

Turning to the legislative framework, all three
countries have provisions for EIAs and public
participation. For example Azerbaijan's Law on
Environmental Protection establishes general
guidelines for assessments and delegates power to an
environmental protection agency (the State Committee
on Ecology and the Use of Nature) to evaluate proposed
projects.40 In Azerbaijan and its CIS neighbors,
however, the agenda is state and expert oriented, and
there is little practical value placed on EIAs carried
out by citizens' groups or NGOs:

[N]on governmental ecological expertise is conducted
in rare cases and does not influence the state of
affairs in the field of environmental protection, at
least at the moment. It is connected with great
procedural and financial complications and rather an
illusory objective. For instance, provision is made
for an obligation of NGOs to conduct costly expert
works at their own expense and to register their
intention to conduct EIA with respective agencies, but
the conclusions of their expertise have no juridical
force. In some circumstances it becomes senseless to
do it.41

More generally, although some weak provisions exist in
the law, the right to public involvement in
decision-making is limited. In Azerbaijan for example,
while members of the public can apply for
accreditation as public environmental inspectors with
the State Committee for Ecology and the Use of Nature,
the decision-making procedures do not include
mandatory consultation with citizens or citizen
groups.42

Not only do NGO assessments bear little weight,
conducting independent investigations about the
potential impact of a lucrative project in the region
can be a dangerous occupation. Amnesty International
reports that during a March 2003 visit to a Turkish
section of the pipeline, its team "was subjected to
constant surveillance by up to [fifteen] plainclothes
security men and uniformed gendarmes, was detained
twice, and was subject to harassment and intimidation
by the security forces."43 The Amnesty investigators
reported having to abandon their interview project as
a result. Ultimately, the weakness of democracy in all
three countries means that public participation in
decision-making is always under threat. Sometimes this
threat is direct through state or private sector
harassment, but it also arises more insidiously
through, for example, state interference with media.44

Furthermore, the legal systems involved rarely provide
adequate remedies to citizens or groups denied
information about a project or a right to be heard.
Even where access to court is formally permitted under
the law, it must be borne in mind that there is a
tremendous gap between the law "on the books" and "law
on the ground." As access to competent counsel is
generally a precondition for using the court system,
the case of the Georgian legal profession is
illustrative. I have elsewhere indicated that for the
first ten years of Georgian independence there were
few regulatory controls over lawyers - for some of
those years virtually anyone could act as a lawyer in
court.45 There was simply no state-mandated
professional body to screen lawyers for qualifications
or to discipline wrongdoers.46 Finally, after
prompting from the Council of Europe (among other
conditions for accession the Council required Georgia
to pass a law on attorneys) the Georgian Parliament
did pass a law instituting regulation of the legal
profession in 2001.47 The law is a progressive one. It
sets out some key ethical precepts such as
confidentiality and requires lawyers to have legal
education, to undertake an internship and write exams.
Unfortunately, implementation of this law has been
weak. Despite the legal requirement that all lawyers
pass a qualification exam by June 2003, no
examinations had been held by that time.48 While there
are many competent and honest lawyers in Georgia,
there are also large numbers who fully participate in
the corruption characterizing many aspects of the
under-funded and poorly-respected court system.49 As a
result, it is difficult to conceive of real access to
courts in the environmental or any other sphere in the
absence of a properly functioning legal profession.50

On the political side, the region's democracies are
flawed, perhaps especially so in Azerbaijan and
Georgia. The October 2003 presidential election in
Azerbaijan, for example, was marked by electoral fraud
and intimidation in the dynastic succession from the
elder to the younger Aliev.51 The younger Aliev,
Ilham, is unabashedly friendly to Western oil
companies, as was his father Heidar. Oil companies in
turn have made no secret of their support for Ilham,
as has the United States, which made only muted
protests to the election fiasco. At the same time,
following the election, there have been large
protests, and Azerbaijan is less stable now than it
has been at any time since the cease-fire with
Armenian forces over Nagorno-Karabakh was signed in
1994. Less than one month after the elections in
Azerbaijan, Georgian Parliamentary elections were also
characterized by irregularities.52 These
irregularities triggered massive street protests and,
following a storming of the Parliament, the forced
resignation of President Shevardnadze. Although
Shevardnadze's removal was popular and the country's
new leaders have reformist credentials, it is worth
remembering in the midst of the euphoria that the
transition of power was contrary to the constitution
and has sparked fears of further instability. Indeed
for some days around the time of the street action, it
was not clear who was in control of the country.53
Fraudulent elections have several negative results,
including the coming to power - or maintenance of
power - of unaccountable decision-makers and continued
regional instability. Furthermore, these
decision-makers may have elite and/or regional power
bases, and resentment is bred from neglected groups
and areas from the lack of equitable or balanced
development.54

In sum, despite the major difficulties with the HGAs,
the current alternative - regulation by domestic law
alone - is unlikely to promote sustainable
development. The following case study will show, among
other things, that despite the fact that the pipeline
regime is insulated from domestic law through HGAs,
the weakness of governance in the region leads to
distorted business decision-making and lower profits
for the oil companies. It will also show that until
governance is demanded and promoted, sustainable
development cannot be adequately advanced in the oil
industry, even with ideal HGAs (which the current ones
are not).

IV. CASE STUDY OF BORJOMI

Anyone who has visited Georgia's Borjomi Gorge is
immediately struck by its beauty. Not surprisingly,
many Georgians consider it to be the "crown jewel" of
the country's areas of natural significance. The area
also has economic significance. It is a tourist
destination in both winter (skiing) and summer (hiking
and as a place of rest) and is the source for one of
Georgia's most significant exports, mineral water. The
award-winning mineral water is sold in Georgia,
Russia, and elsewhere under the brand name "Borjomi."
It thus came as a shock to many Georgians that the
area was being considered as a route for the pipeline.
Despite large public protests, however, Georgian
authorities officially approved the route on December
13, 2002.

Significantly, however, approval did not come with the
willing acquiescence of the Environment Ministry. The
Ministry was opposed to the routing in an unusually
public rift. In a letter dated November 26, 2002, the
Environment Minister, Nino Chkhobadze, wrote to BP,
setting out her concern that the route was both
environmentally dangerous and contrary to Georgian
law:

BP representatives are requesting the Georgian
Government to violate our own environmental
legislation. It is intended the 20km segment of the
pipeline cross the Borjomi Valley region representing
a mother lode of national, cultural and environmental
heritage for Georgia and a support zone area for the
Borjomi-Kharagauli National Park. . .The Borjomi
Valley region is recognized as an aquifier by the Law
of Georgia on Water Resources and is protected as a
Managed Reserve.55

The Minister also suggested that BP's EIA downplayed
risks in the area - including the risk of landslides -
and presented the route to the Environment Ministry as
a "fait accompli." Less than a week later, the
Minister folded in her outright opposition to the
route but only after being summoned at 3:00 a.m. to
the State Chancellery on December 2.56

In the face of such stiff opposition it is reasonable
to ask why the route was chosen and an alternative not
found. The Borjomi decision weakened President
Shevardnadze's already low standing with the public
and BP suffered damaging publicity internationally and
locally. The sheer volume of protest by ordinary
Georgians - in addition to the perhaps expected
protests from NGOs - brought into question the
credibility of BP's publicly stated claim that it
consults with stakeholders.57 Furthermore, from the
technical point of view another less environmentally
sensitive route through the Javakheti region was
available.58 This latter route also had the advantage
of being shorter and less expensive. Yet both the
consortium and the government were insistent on
avoiding the region. While both have officially
maintained that Borjomi is the best route for a number
of objective reasons, the desire to avoid Javakheti is
an open secret and was freely admitted to the author
in Spring 2003 in "off the record" discussions with
senior U.S. and Georgian officials involved with the
issue.

Javakheti is a poor, ethnically Armenian area in
Southern Georgia. It is isolated from the centre in a
number of ways. The regional capital, Akhalkalakhi, is
located 300 km from Tbilisi over poor roads,
ironically on a circuitous route passing through
Borjomi. There is a more direct route but the roads
are virtually impassable. Accordingly, it is difficult
for local farmers to take their products to Tbilisi
and for businesses in the capital to invest in the
region. Telecommunications are also poor, though even
if they were better, a language barrier would still
exist. The majority of the population speaks Armenian
and/or Russian, not Georgian. While efforts are being
made to teach Georgian in schools, the lack of
qualified teachers provided by Tbilisi means this is
progressing slowly. As Russian, the Soviet
inter-ethnic lingua franca, fades from use in the rest
of Georgia, there is a danger that communication will
become more difficult.

In addition to the physical and linguistic isolation,
there is civic isolation. While there is no
deep-seated ethnic tension between Armenians and
Georgians, there is a great deal of antipathy towards
the authorities in Tbilisi, whom the majority of
Javakheti residents see as neglectful and insensitive
to local needs. There are a variety of issues, ranging
from the dismissal of Armenian judges for their
inability to speak the state language,59 to the fact
that for many medical treatments patients must go
across the border to Armenia.60 Perhaps the main point
of tension is the Georgian insistence that the Russian
military base at Akhalkalakhi be closed.61 The base is
the only significant employer in the region and there
are no concrete planned alternatives to the base.

While the region is by no means a lawless "no man's
land," the central government does not have a firm
grip - it must rely on the support of local
power-brokers. There are also weapons in circulation,
bought on the black market from Russian soldiers.
There are fears that Javakheti may one day - perhaps
with Russian manipulation - become another Abkhazia or
South Ossetia situation (two territories which broke
off from Georgia in the early 1990s and which
currently have de facto independence). At the end of
the day, the government and the oil companies do not
want the potential of having the pipeline held captive
and taxed or destroyed by separatists, opportunists or
terrorists. Borjomi is therefore a safer decision than
Javakheti.

From a short-sighted perspective on risk, avoiding
Javakheti and routing the pipeline through Borjomi is
a rational decision - the best of a set of bad
options. Looked at through the rubric of sustainable
development, the routing decision is a poor one. The
players have missed an opportunity to save money,
avoid an environmentally sensitive area and connect -
literally as well as economically - one isolated area
of Georgia to the rest of the country.

V. CONCLUSION: THE NEED FOR GOOD GOVERNANCE

The BTC pipeline regime raises concerns about
sovereignty, human rights, and the environment.
Critics have recommended some improvements, such as
building references to human rights standards into the
HGAs, but these suggestions have been largely ignored.
At any rate, these improvements will not fundamentally
address the problems. The obvious alternative to the
HGA system is pure domestic regulation of the
pipeline. This is currently a poor option in light of
the weakness of democracy and the rule of law in the
South Caucasian states of Azerbaijan and Georgia as
well as in Turkey. Domestic regulation alone at this
point might scare off responsible investors and do
little to promote sustainable development.

The solution proposed here is for all the actors to
work together for good governance and, ultimately,
full domestic regulation of the oil and gas industry.
Both principal aspects of good governance - the rule
of law and democratization - will need to improve
before domestic regulation can take place. In terms of
democratization, this will mean fair elections,
enhanced local self-government, and a voice for
disaffected groups including minorities.62 Jonathan
Walters of the World Bank has summarized what is
needed with respect to law (naturally given the
obligation of the Bank not to interfere with domestic
politics he does not tackle democratization head on):

Legal reforms, which enhance property rights,
environmental management, and labor protection, as
well as judicial reforms to improve enforceability,
would help mitigate investor risk and increase the
host country benefits from investment. Over time, host
countries could move away from the ratified PSAs,
which provide apparently strong political risk
mitigation, but do so only through a perceived loss of
sovereignty (which imposes its own political risk).
This will require inter alia sound investment and tax
legislation (including probably a specific petroleum
law reflecting best international practice), strong
civil codes and other legislation underpinning
contractual rights, enhanced labor law, and improved
legislation on environmental standards and
liabilities.63

This could happen over a relatively short period of
time.64 While it would be foolish to speculate as to
exactly how long this would take, if concerted efforts
are made it could happen in several years, and at any
rate in much less time than the forty years envisaged
by the HGAs.

There is at present little desire among
decision-makers to change the routing of the BTC.
Construction of the pipeline has already started and
may be completed as early as the end of 2004. At the
time of writing, a court action brought in Tbilisi by
an NGO called Green Alternative to stop construction
is pending.65 The court action alleges that the
approval process failed to comply with Georgian
legislation. However, it would be surprising if the
lawsuit was successful in stopping the pipeline given
the current weakness of the courts and the resolve of
the oil companies and Georgian politicians, including
the leaders of Georgia's recent 'rose revolution.'66
But there are other pipelines planned for the region
where routing could be improved.67 And aside from the
routing question there is the question of operation,
which is a long-term prospect. If the region's
governments change and/or are able to "get their acts
together," they may be able to reasonably request a
renegotiation with the oil companies for more
domestically-based regulation.68

One way to press for good governance is through
political pressure. For this to happen, real pressure
from (and on) Western governments, multilateral
institutions and lenders will have to be brought to
bear. And citizens and NGOs inside and outside the
region will need to be engaged with what are complex
issues. Unfortunately, some of the 'carrots' possessed
by Europe to encourage good governance have already
been used up. For example, membership in the Council
of Europe was granted to Georgia and Azerbaijan, in
1999 and 2001 respectively, despite serious human
rights problems in those countries. And in November
2003, over the protests of opposition groups such as
the Baku-Ceyhan Campaign, funding for the BTC was
granted by the European Bank for Reconstruction and
Development and the International Finance Corporation,
the World Bank's private sector branch.69 This
financing adds not only investment to the project, but
the multilateral stamp of respectability as well.
Indeed, as one observer puts it, BP and its partners
could raise the money on their own; what they needed
was "the political blessing of the two agencies to
avoid claims that the project fails to meet
international standards."70 It may be that good
governance will only be pursued when the actors
involved realize the self-interests at stake -
stability and improved profit margins - in addition to
the environmental imperative.


[Footnotes]

1. The BTC route was in fact the most expensive of the
pipeline routes considered: R. Soligo & A. Myers
Jaffe, The Economics of Pipeline Routes: The Conundrum
of oil Exports from the Caspian Basin, in ENERGY IN
THE CASPIAN REGION: PRESENT AND FUTURE (YELENA
KALYUZHNOVA ET AL. EDS., 2002).

2. A central feature of the IGA is that Azerbaijan,
Georgia, and Turkey warrant to each other that they
are not subject to any domestic or international legal
obligation which would conflict with the pipeline
project. Amnesty International has expressed concern
that if Turkey's international human rights
obligations contradict the pipeline's construction or
operation (vis à vis workers, neighboring communities
and so forth), then human rights will come out the
loser under the "no conflict" warranty of the IGA. See
AMNESTY INT'L, HUMAN RIGHTS ON THE LINE: THE
BAKU-TBILISI-CEYHAN PIPELINE PROJECT 16 (2003),
available at http://www.amnesty.org.uk/
images/ul/H/Human_Rights_on_the_Line.pdf.

3. Agreement on the Joint Development and Production
Sharing for the Azeri and Chirag Fields and the Deep
Water Portion of the Gunashli Field in the Azerbaijan
Sector of the Caspian Sea, Sept. 20, 1994, available
at
http://www.caspiandevelopmentandexport.com/Downloads/ACG/Eng/agmt1/agmt1.pdf.

4. See AZER. CONST. §V, ch. X, art. 151. Article 151
of the Constitution of the Republic of Azerbaijan
states: "Whenever there is disagreement between
normative-legal acts in legislative system of the
Azerbaijan Republic (except the Constitution of the
Azerbaijan Republic and acts accepted by way of
referendum) and international agreements wherein the
Azerbaijan Republic is one of the parties, provisions
of international agreements shall dominate."
Similarly, Article 6(2) of the Constitution of Georgia
provides: "International treaties or agreements
concluded with and by Georgia, if they do not
contradict the Constitution of Georgia, take
precedence over domestic normative acts." GEOR. CONST,
ch. 1, art. 6, para. 2.

5. See Host Government Agreement Between and Among the
Government of Georgia and the MEP Participants, Apr.
28, 2000 [hereinafter HGA], available at
http://www.caspiandevelopmentandexport.com/
Downloads/BTC/Eng/agmt2/agmt2.PDF.

6. Id. art. 3.

7. id. art. 5.2(v).

8. Id. arts. 4.1 (ii), (vii).

9. Id. art. 5.2.(iii).

10. Press Release, Friends of the Earth, Oil Companies
Colonise Turkey (Aug. 30, 2002), available at
http://www.foe.co.uk/resource/press_releases/20020830100059.html.
Turkey's partial surrender of control of territory may
also have implications for its pre-accession
partnership with the European Union. Counsel's Opinion
in the Matter of the Baku-Tbilisi-Ceyhan Pipeline
(Jan. 15, 2003), available at http://www.baku.org.uk/
publications/opinion_moser.pdf.

11. HGA, supra note 5, app. 3. Similarly, the IGA
stipulates that the standards of safety shall conform
to the standards of the petroleum industry and at any
rate should not be lower than those generally applied
within the European Union.

12. Id. art. 11.1.

13. See AMNESTY INT'L, supra note 2, at 21.

14. See id.

15. Id. at 6-7.

16. Öneryildiz v. Turkey, App. No. 48939/99 Em. Ct.
H.R. (2002) (holding that Turkey was liable for the
failure to prevent exposure to citizens from dangerous
gasses which built up over time), available at
http://hudoc.echr.coe.int/hudoc.

17. The Baku-Tblisi-Ceyhan Pipeline Company, The BTC
Human Rights Undertaking (Sept. 22, 2003), available
at
http://www.caspiandevelopmentandexport.com/Downloads/Human%20Rights%20Undertaking.pdf.

18. See AMIS DE LA TERRE ET AL., REVIEW OF THE
ENVIRONMENTAL IMPACT ASSESSMENT FOR THE
BAKU-TBILISICEYHAN OIL PIPELINE (TURKEY SECTION),
EXECUTIVE SUMMARY 4 (2003), available at
http://ifiwatchnet.org/doc/ btcexecsumm.pdf.

19. HGA, supra note 5, app. 3, § 3.3.

20. See Daan van der Schriek, Environmental Protests
Linger After Pipeline's Approval, EURASIANET, Dec. 17,
2002, at
http://www.eurasianet.org/departments/environment/eav121702_pr.shtml.

21. For example, when the Canadian energy group
Talisman pulled out of Sudan due to instability and
criticism over its human rights record, it was quickly
replaced by the Indian company ONGC Videsh. Talisman
Pulls Out of Sudan, BBC NEWS, Mar. 10, 2003, available
at http://newsvote.bbc.co.uk/mpapps/pagetools/print/
news.bbc.co.Uk/1/hi/business/2835713.stm.

22. For a discussion on the question of the efficacy
of voluntary adherence to best practice standards, see
Alexandra S. Wawryk, International Environmental
Standards in the Oil Industry: Improving the
Operations of Transnational Oil Companies in Emerging
Economies, CTR. FOR ENERGY PETROLEUM & MIN. L. &
POL'Y. J., Dec. 13, 2002, available at
http://www.dundee.ac.uk/cepmlp/journal/html/Vol13/vol13-3.html.

23. Compare Baku-Ceyhan Campaign, at
www.bakuceyhan.org.uk (various documents on opinions
suggesting specific amendments to the HGAs) with
PLATFORM ET AL., SOME COMMON CONCERNS (2002)
(suggesting a fundamental rethinking), available at
http://www.bakuceyhan.org.uk/some_common_concerns.htm.

24. Report of the U.N. Conference on Environment and
Development, princ. 3, U.N. Doc. A/CONF.151/26 (vol.
I) (1992), available at
http://www.un.org/documents/ga/conf151/aconf15126-1annex1.htm.

25. See, e.g., David Luff, An Overview of
International Law of Sustainable Development and a
Confrontation between WTO Rules and Sustainable
Development, 1 REVUE BELGE DE DROIT INTERNATIONAL 90
(1996). In a related vein, it has been argued that
there is what might be called a universal right to a
healthy environment. See, e.g., John Lee, The
Underlying Legal Theory to Support a Well-Defined
Human Right to a Healthy Environment as a Principle of
Customary International Law, 25 COLUM. J. ENVTL. L.
283 (2000).

26. From the United Nations Conference on Environment
and Development (UNCED) 1992, see Agenda 21: The
United Nations Programme of Action From Rio, UN Doc.
DPI/1344 (1993), available at http://www.un.org/
esa/sustdev/documents/agenda21/english/agenda21toc.htm.

27. Report of the World Summit on Sustainable
Development, U.N. Doc. A/CONF. 199/20 (2002),
available at
http://www.unon.org/css/doc/unep_gcss/gcss_viii/bg/wssd/r_wssd_e.pdf.

28. For a discussion of soft law, see PATRICIA W.
BIRNIE & ALAN E. BOYLE, INTERNATIONAL LAW AND THE
ENVIRONMENT (2nd ed. 2002); Hartmut Hillgenberg, A
Fresh Look at Soft Law, 10 EUR. J. INT'L L. 499
(1999).

29. International Law Association, Committee on Legal
Aspects of Sustainable Development, Searching for the
Contours of International Law in the Field of
Sustainable Development, in REPORT OF THE SEVENTIETH
CONFERENCE 5 (New Delhi, 2002).

30. Alhaji B.M. Marong, From Rio to Johannesburg:
Reflections on the Role of International Legal Norms
in Sustainable Development, 16 GEO. INT'L ENVTL. L.
REV. 21, 57 (2003).

31. Other core principles of sustainable development
include the precautionary approach, intergenerational
equity, and the polluter-pays principle. For examples
of variance between lists of principles, compare the
ILA principles and those of authors such as Alan Boyle
and David Freestone. New Delhi Declaration of
Principles of International Law Relating to
Sustainable Development, International Law Association
Res.3/2002, Apr. 6, 2002, available at
http://www.cisdl.org/pdf/ILAdeclaration.pdf; ALAN
BOYLE & DAVID FREESTONE EDS., INTERNATIONAL LAW AND
SUSTAINABLE DEVELOPMENT: PAST ACHIEVEMENTS AND FUTURE
CHALLENGES 8-16 (1999).

32. Report of the United Nations Conference on
Environment and Development, Annex I (Rio de Janeiro,
June 3-14, 1992), [hereinafter Rio Declaration on
Environment and Development], available at http://
www.un.org/documents/ga/conf151/aconf15126-1annex1.him.

33. Council Directive 85/337/EEC of 27 June 1985 on
the Assessment of the Effects of Certain Public and
Private Projects on the Environment, available at
http://www-penelope.drec.unilim.fr/penelope/Library/Libs/
EURO/ecdir/ecdir.htm. See P. Sands & D. Alexander,
Assessing the Impact, NEW L. J., Nov. 1, 1991, at
1487-90.

34. See generally Francis N. Botchway, Good
Governance: The Old, the New, the Principle, and the
Elements, 13 FLA. J. INT'L L. 159 (2001).

35. TURK. CONST. art. 56 (as amended 1982).

36. AZER. CONST. § II, ch. III, art. 39.

37. In addition to providing for the right to a
healthy environment, Article 42 of the Russian
Constitution states: "Everyone shall have the right to
a favourable environment, reliable information about
its state and for a restitution of damage inflicted on
his health and property by ecological transgressions."
Russ. CONST. (1993), available at
http://www.constitution.ru/en/10003000-01.htm.

38. GEOR.CONST. art 37, para. 3,4.

39. See Press Release, European Court of Human Rights,
Admissibility Decision in the Case of Shamayev and 12
Others v. Georgia and Russia, Release no. 455 (Sept.
19, 2003), available at
http://www.cchr.coe.int/Eng/Press/2003/sept/DecisionShamayev(admissible)19092003.htm.

40. Law on Environmental Protection, Dec. 19, 1991,
available at
http://www.personal.ceu.hu/departs/envsci/
eianetwork/leg islation/#rus (English summary available
at
http://ladoga.krc.karelia.ru/legis/le gislation/federal/
laws.shtml#law91). This State Environmental Review
(SER) model is rooted in the Soviet environmental law
heritage.

41. Irina Krasnova, Legal, Regulatory and
Institutional Measures for the Protection and
Sustainable management of the Caspian Sea Ecosystem in
the Riparian States, in CASPIAN ENVIRONMENT PROGRAMME
REPORT 19 (2001),
aihttp://www.caspianenvironment.org/report_miscell5.htm.

42. Id. at 50. For proposals on how to improve public
oversight of the industry in Azerbaijan, including the
establishment of citizens' councils, see Richard G.
Steiner, Models of Public Oversight of Government and
Industry, reprinted in SVETLANA TSALIK, CASPIAN OIL
WINDFALLS: WHO WILL BENEFIT? 71 (2003), available at
hup://www.soros.org/initiatives/cep/articles_publications/publications/caspianoilwindfalls_20030514/full_report.pdf.

43. AMNESTY INT'L, supra note 2, at 21.

44. See Gillian McCormack, Patterns of Media Control
In Post-Soviet Elections, JAMESTOWN Russ. & EURASIA
REV., Oct. 22, 2002, available at
http://www.jamestown.org/publicationsjetails.php?volume_id=15&issue_id= 608&article_id=4470.

45. CURISTOPHRR P.M. WATERS, COUNSEL IN THE CAUCASUS:
PROFESSIONALIZATION AND LAW IN GEORGIA (2004).

46. Although a 1980 law on the Bar formally remained
in effect for the first post-independence years, its
terms were generally ignored in practice.

47. Law of Georgia on the Bar (June 20, 2001).

48. Elizabeth Fuller, Georgian Constitutional Court
Denies Dismissing Armenian Judges, RFE/RL NEWSLINE,
June 2, 2003, available at
http://www.rferl.org/newsline/2003/06/2-TCA/tca-020603.asp.

49. At the same time, I do not want to overstate the
point. There have been major improvements since
reforms were launched in 1997. In that year the Law on
the Judiciary (June 13, 1997) set out a comprehensive
road map for reform with three main planks: i)
unifying and rationalizing the court system; ii)
ending the authority of the Ministry of Justice over
the courts; and iii) professionalizing the judiciary.
The first and second planks have taken place and third
one has improved with the use of exams. Unfortunately,
exams cannot test integrity.

50. The poor state of the legal systems also means
that if Georgia was regulating the oil industry
without an HGA, it would have trouble in holding the
oil companies to account for full payment of taxes.
For a description of how Alaska has ensured revenue
accountability in that jurisdiction and implications
for the states involved with Caspian oil, see Richard
A. Fineberg, Securing the Take: Petroleum Litigation
in Alaska, reprinted in TSALIK, supra note 42, at 53.

51. The October 15, 2003 preliminary OSCE report noted
intimidation against opposition supporters and media
and stated that the "election fell short of
international standards in several respects."
International Election Observation Mission,
Presidential Election, Republic of Azerbaijan, Oct.
16, 2003, available at
http://www.osce.org/doeuments/odihr/2003/10/806_en.pdf.

52. According to the OSCE's November 3, 2003
preliminary report, the elections "fell short of a
number of OSCE commitments and other international
standards for democratic elections. Inaccuracies in
the voter list seriously challenged the fundamental
guarantee of universal and equal suffrage, and
lessened voters' confidence in the State
administration." International Election Observation
Mission, Parliamentary Elections, Republic of Georgia,
Nov. 3, 2003, available at
http://www.osce.org/documents/odihr/2003/11/1031_en.pdf.

53. Nick Walsh & Natalia Antelava, Protestors Threaten
to Oust Georgia's President: Shevardnadze on the Brink
of Losing Power as Democracy Demonstrators Batter
their Way into Parliament, OBSERVER, Nov. 23, 2003, at 23.

54. See Botchway, supra note 34, at 194.

55. See Owen Bowcott, Unstable Artery: Hazardous
Pipeline Violates Georgia's own Legislation, GUARDIAN,
July 23, 2003.

56. See van der Schrick, supra note 20.

57. See BP Stakeholder Engagement, at
http://www.bp.com/sectiongcnericarticle.do?categoryld=51&content ld=2004034
(last visited Jan. 31, 2004). In fairness it should be
noted that some people in the town of Borjomi itself
are keen to have the pipeline for the economic
benefits it will bring.

58. Another alternative was through the mountainous
Karakava and Aspindza areas, though this was seen as
less technically feasible.

59. Fuller, supra note 47.

60. Videotape: Awareness Raising Video on Javakheti
(Studio Rc, Tbilisi 2002) (on file with author).

61. Molly Corso, For Javakheti Armenians, Home is
Where the Base Is, EURASIANET, Sept. 27, 2002, at
http://www.eurasianet.org/departments/culture/articles/index.shtml.

62. These principles are also obligations as all three
countries have ratified the major human rights
treaties under the UN and European rights regimes.

63. Jonathan Walters, Caspian Oil and Gas: Mitigating
Political Risks for Private Participation, CTR. FOR
ENERGY PETROLEUM & MIN. L. & POL'Y. J., Sept. 20,
2000, available at
http://www.dundee.ae.uk/cepmlp/journal/
html/vol7/article7-5.html.

64. The precise elements of a good governance agenda
are beyond the scope of this brief paper, but have
been thoroughly put forward elsewhere. See, e.g.,
Botchway, supra note 34.

65. Georgian Court Decision Could Force Delay in
Pipeline Construction, EURASIANET, July 3, 2003, at
http://www.curasianet.org/departments/environment/articles/eav070303.shtml.

66. See Mevlut Katik, Amid Risk, Baku-Ceyhan Pipeline
Edges Forward, EURASIANET, Dec. 1, 2003, at
http://www.eurasianet.org/departments/business/articles/index.shtml.

67. For example, there is a planned pipeline which
will extend from Baku to Erzerum. See Nurlana Guliev &
Rufat Abbasov, Azerbaijan: Gas Pipeline under Fire,
INST. FOR WAR AND PEACE REPORTING, Caucasus Reporting
Service, June 13, 2003, available at
http://www.iwpr.net/index.pl?archive/cau/cau_200306_183_4_eng.txt.

68. There are disincentives to renegotiation, most
particularly the threat to foreign direct investment
that arises whenever contract stability is threatened
(and indeed a requirement for contract stability is
both a provision of the HGAs and the 1994 Energy
Charter Treaty, which all three countries have
ratified). Nonetheless, it is not impossible, as
renegotiations and proposed renegotiations in
Kazakhstan reveal. See Tengiz Expansion Plan Back on
the Table, RFE/RL CENTRAL ASIA REPORT, Dec. 12, 2002,
available at
http://www.rferl.org/reports/centralasia/2002/12/46-121202.asp.

69. See Alan Beattie, IFC Backs Oil Pipeline Project,
FINANCIAL TIMES, Nov. 5, 2003, at 9; Press Release,
European Bank for Reconstruction and Development, EBRD
Board Approves BTC Pipeline Financing (Nov. 11, 2003),
available at
http://www.ebrd.com/new/pressrel/2003/142nov11.htm.

70. Carl Mortished, BP Awaits Pipeline Ruling, THE
TIMES, Oct. 27, 2003, at 23.


Christopher P.M. Waters is a Law Lecturer and the
Deputy Director of the Centre for Euro-Asian Studies
at the University of Reading in the United Kingdom. He
has been involved with numerous higher education and
law reform projects in the South Caucasus since 1998.
The author expresses thanks to Yelena Kalyuzhnova,
Alhaii Marong, and Anneke Smit for reviewing earlier
versions of this article.

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