Winter 2002 (10.4)
BTC Section - Between two seas
on the BTC Pipeline Project
The aim of BTC is to make
sure no owners or users of the land should be disadvantaged by
Constructing a 1,760 - kilometre oil pipeline in less than two
years through three countries and across some of the toughest
mountain terrain in the world is a mega-project by any standard.
Add in the political, financial, safety, environmental and social
issues that always surround ventures of this magnitude, and it
becomes clear that the $2.95-billion Baku-Tbilisi-Ceyhan (pronounced
JEY-han) (BTC) pipeline will set world-class benchmarks in many
Left: Many of the remote villages along BTC's
route lack basic infrastructure.
Even now, a few months
before the start of actual construction, records are being set.
More consultation has taken place in regard to route selection
and environmental, social and safety matters than on any other
comparable industrial project in recent memory. The number of
organisations involved - from national governments to local community
bodies, non-governmental organisations, the 11 partner companies
that make up BTC, hundreds of contractors and numerous international
institutions - is huge and getting bigger every day.
At the same time, the logistical and engineering challenges involved
in laying a pipe of 86-116 centimetres diameter about one metre
underground for the entire length of the link is considerable
- not to mention crossing numerous rivers, supporting thousands
of workers for two years in remote areas and utilising heavy
excavators and pipe-laying tractors to install 150,000 pipe sections
in places where there is little or no infrastructure.
The pipe shipments for Azerbaijan alone will mean importing more
than 155,000 tonnes of steel via Georgian Black Sea ports and
then over the rail system to Azerbaijan.
Yet in reality, laying the pipe is only half the story. To keep
oil flowing, the BTC project - which will be completed by the
end of 2004, linking Azerbaijan, Georgia and Turkey - needs an
upgraded marine terminal (now being built on the shores of the
Caspian Sea at Sangachal, near Baku) and an offshore loading
facility at Ceyhan on Turkey's Mediterranean coast, in addition
to eight pumping stations.
Perhaps that is why the BTC consortium has thought big from the
outset. First discussed in the early 1990s after the collapse
of the Soviet Union, the project to link the Caspian and Mediterranean
with an oil pipeline remained a dream in the eye of the governments
of the region until reserve estimates for offshore fields in
the Caspian began to grow at the end of the 1990s.
Left: The Community Investment Programme
will encourage small enterprises in rural areas.
In November 1999, preparatory
Inter-Governmental and Host Government Agreements were signed,
to be ratified six months later by the parliaments of the three
countries. Route selection began soon after, and by the end of
2000, basic design work was underway. In the summer of 2001,
detailed engineering planning commenced, along with consultation
with the communities along the route that were likely to be affected.
In the summer of 2002, the composition of the BTC Pipeline Company
(BTC Co.) was formalized. In September, the presidents of the
three host countries attended a ceremony to commemorate the beginning
of construction at Sangachal Terminal.
Underpinning all these developments are the Host Government Agreements
(HGAs), drawn up after lengthy negotiation and subject to extensive
public consultation, scrutiny and ratification by the sovereign
For the partner companies in the BTC consortium, the HGAs - public
documents available for inspection on the BTC website - protect
their investment against arbitrary changes in law, taxation and
provision of key services such as water. In addition, the HGAs
allow the companies to demand compensation if there are legal
changes that affect the project.
These agreements also make clear that the three host governments
are responsible for security, which means safeguarding their
nationals and protecting BTC staff and important transport infrastructure.
BTC will be responsible for ensuring the physical integrity of
the pipeline, and the consortium will employ locally-hired unarmed
staff to patrol the line. But as is normal all over the world,
ultimate responsibility for protection of the line will rest
with the sovereign government in each country.
Left: Once the pipeline is laid and buried,
the land above it can be used for agriculture just as before.
Effectively, these agreements
create clarity and certainty for the project. They do not deny
future governments the right to adopt fiscal or regulatory changes
as they see fit. They do not grant BTC partners immunity from
compensation claims for damage resulting from the project. Nor
do they exempt the companies from the obligation to comply with
national laws relating to such matters as environmental protection
and employment rights. What they do provide for the governments
involved is a guarantee that the project will be carried out
to the highest international standards of safety and environmental
In the long run, the best guarantor of success is good relations
with communities along the route. This, we believe, will do more
than anything else to ensure BTC gets it right. For that reason,
consultation is central to all we do. In the spring of 2002,
we published detailed environmental and social impact reports
which were approved by each host government by early December.
Further consultation will take place as the project raises finance
from banks and international lending institutions over the coming
Consultation, in fact, will be an ongoing process throughout
the life of the pipeline. Our objective is that no one should
lose by our presence. The gains should be as widespread as possible.
We are confident that the cooperative approach already taken
by the numerous organisations involved in BTC will achieve this
- Acquiring the Land
Land is required to build the pipeline and its associated facilities,
but the project has been designed to avoid residential areas,
and no one will need to be relocated.
The process of acquiring land along the length of the route began
in the spring of 2002, when a preliminary survey was undertaken.
Subsequently, many thousands of landowners and users were interviewed
to document the existing state of the land and record concerns
and objections. Negotiations with landowners in Georgia and Turkey
began in November, with signings, in the event of agreement,
set for early 2003.
(Left): The terminal
operators are keen supporters of the tortoise conservation programme.
Right: Sangachal is set to become one of the
world's most important oil export terminals.
The scale of this effort can best be appreciated in Turkey. Here
the pipeline route extends for 1,076 km, traverses 10 provinces,
passes by almost 300 settlements and crosses 12,277 parcels of
land. About 3,100 hectares of land will be acquired on a temporary
or permanent basis along the pipeline corridor. In all, nearly
30,000 people in Turkey will be affected by the project, including
about 28,000 landowners, approximately 1,000 sharecroppers and
tenants and a number of fishermen who live and work near the
new marine terminal in Ceyhan.
In Azerbaijan the project will cross almost 6,600 parcels of
land, skirt 131 villages and affect about 4,000 landowners and
users along its 443 km. Around 2,000 hectares of land will be
acquired temporarily. As in Turkey and Georgia, no one will have
to move from their homes. About 80 per cent of land in the pipeline
"corridor" in Georgia and 65 per cent of the corridor
land in Azerbaijan is owned by the state through national or
Left: Laying the Western Route Export Pipeline from
Baku to Supsa in 1998. It now carries more than 130,000 barrels
of oil each day, safely and invisibly. Below:
In all three countries, landowners will receive a sum above the
minimum government rate under national expropriation laws. This
money will be paid either for the outright purchase of land,
or for the lease of land during construction.
Compensation will also be due for cultivated crops growing within
the wider corridor, for the loss of physical assets such as trees,
fences or wells in this zone, and for damage done to buildings,
crops or animals during construction.
Regardless of national practice, users as well as owners of land
will be eligible for payment. As a rule, payment will be made
within 45 days of the date of a settlement.
Normally, the period necessary for laying the pipeline at any
worksite - and therefore the time needed for use of land in the
construction corridor - will be about two months. This will increase
where it's necessary to cross rivers or build pump and block
valve stations. When each construction phase is completed and
the land reinstated to its original condition, the landowner
or user will be able to farm the corridor above the pipeline.
However, BTC Co. will retain control for the entire construction
phase to permit access for hydro-testing and commissioning.
On average, the pipeline will be buried one metre below the surface.
Shallow-rooted crops and shrubs will be allowed above the pipe,
but there will be restrictions on tree-planting, deep excavation
and ploughing, and structures will not be permitted to be built
close to the pipeline corridor.
Various grievance procedures for deciding ownership issues have
been set up in each country separate from its judicial system.
Should these fail to resolve the situation, BTC Co. or its agent
will normally fund a lawsuit to determine ownership. Similarly,
if a landowner disputes the compensation valuation put on his
land, BTC will pay the court fees involved in clarifying the
A recovery period for the land disturbed by construction has
been built into BTC's compensation calculations. Ultimately,
the goal of the project is to return all land to its owners in
a condition that is at least as good as that found prior to construction.
Choosing the Contractors
Left: The final route of BTC follows a tortuous
path to avoid housing and sensitive habitats.
Two principles guided
the multifaceted task of choosing companies to build the pipeline.
The first was that BTC Co. had to have complete confidence in
each contractor's ability to do the job. The second was that
the process of selection had to be competitive, fair, and seen
to be fair.
Confidence was achieved through a mixture of core competencies,
experience, safety record and an extensive and wide-ranging investigation
during a pre-qualifying phase. Fairness was guaranteed by the
transparent nature of the bidding and selection process.
Given the complex nature of the engineering challenge posed by
the pipeline, the various parts of the project were divided into
portions to ensure competition. Then the selection process was
split into five stages: attracting interest, assessing competence,
opening bidding, receiving bids and evaluating bids.
The Turkish end of the project was broken down into six packages,
with the pipeline split into three lots in addition to the pump
stations and onshore and offshore parts of the Ceyhan terminal.
In Azerbaijan and Georgia, the laying of the pipeline was handled
as two separate packages and the pump stations in both countries
lumped together as a single package.
In Turkey, BOTAS - BTC's lump-sum contractor-advertised in leading
international business newspapers. As a result, 99 potential
contractors purchased pre-qualification packages. The bidding
process then matched internationally recognized terms and conditions
set by the International Federation of Consulting Engineers (Fédération
Internationale des Ingénieurs-Conseils) (FIDIC). In Azerbaijan
and Georgia, selection followed processes used by BP elsewhere
in the world on many occasions.
Contractor screening and pre-qualification was carried out with
Kvaerner, an independent engineering company (now known as John
Brown Hydrocarbons). Some 55 companies were screened and 15 were
selected for pre-qualification. This involved analysis of each
company's safety record, experience, logistical capacity and
commercial structure, among other things. Eight companies were
chosen to proceed to the competitive bidding phase.
At this point, two-way communication stepped up a gear. Bidders
were shown various sites and walked parts of the likely route.
Meetings were held to explain the health, safety and environmental
standards required. Later, a meeting was held in London, at which
all bidders examined the tender documents and had the opportunity
to ask the BTC project team questions.
Subsequently, general bids were calculated. Chosen companies
were then required to submit precise costs and proposed engineering
methods in addition to detailed plans about logistics, timing
of work and personnel. Major items like pumps and pipe have been
bought by BTC and in effect are being provided free to the selected
All companies involved in bidding for the Georgia and Azerbaijan
sections of the line asked for more time, in view of the scale
and complexity of the job. Some bidders wanted to form joint
ventures with others and these had to be evaluated separately
to ensure competition was sustained.
Eventually, after an 18-month process, pipelay and facilities
contracts in Azerbaijan and Georgia were awarded in August 2002:
$155 million to the Greek-based CCIC for pipelay in Azerbaijan,
$170 million to the Franco-British Spie Capag/U.S. Petrofac for
pipelay in Georgia and $148 million for facilities in both countries.
Additional contracts worth about $1.25 billion were later awarded
in Turkey by BOTAS.
At the end of this complex process, BTC's chief executive officer,
Mike Townshend, concluded: "The contractors have all been
selected on the basis of quality assurance, project management
skills, the availability of the right equipment, health and safety
standards, cost, and their track record in doing other projects
around the world."
Investing in Communities
Three underlying realities help to define the development potential
of the BTC project. The project will impact the livelihoods of
many people. It will skirt some of the most deprived settlements
in the Caucasus and East Anatolian regions. And if benefits are
to be passed on directly to communities, it is largely up to
the BTC Company to make this happen.
Against this background, the consortium is striving to create
an identity of interest in the success of the project with the
communities most affected. Its core approach is the creation
of programmes designed to produce sustainable development in
these settlements - with a bias toward income - generating activities,
improvements in living conditions, and initiatives to enhance
the capacity of communities to organise and help themselves.
The need for such programmes is readily apparent. More than 70
communities surveyed in Azerbaijan last summer volunteered many
urgent and pressing social and economic needs: more employment,
the repair of infrastructure such as schools, sewage systems
and roads, better and more predictable energy supplies, and improved
In Georgia, about 80 per cent of adults surveyed in 72 communities
along the 248 km route are either unemployed or under-employed.
A majority are over age 60. Only 3 per cent have jobs in the
private sector. More than half the households on the route reported
that they lacked money to buy food. Roads are in a state of disrepair,
there are severe energy shortages and only three in ten people
have access to healthcare facilities. A survey in Turkey produced
similar results - particularly in northeast Anatolia, where poverty
In response, a total of $18 million has been allocated to fund
Community Investment Programmes (CIPs): $12 million related to
the BTC project and a further $6 million tied to the South Caucasus
gas pipeline project (SCP). These initiatives, intended to last
a minimum of three years, will be proposed and managed by a range
of organisations, including local and international non-governmental
organisations (NGOs) and target people living in a broad swathe
along the pipeline routes.
A search is now underway for CIP projects that meet the basic
requirements of ensuring sustainability, local participation
and local benefit. A Request for Proposals has been advertised
in each country and is generating considerable response. Qualifying
conditions include the following:
1. The poorest communities will be prioritised, while guaranteeing
equal access regardless of gender, ethnic group or religion.
2. Implementing partners will need to show proven experience
of managing grant-type projects and working on community-driven
3. BP as the operator for BTC and SCP will retain the right to
accept, reject or renegotiate proposals and be responsible for
the overall programme.
4. Everything, including procurement, must be done to BP's global
standards of care, transparency and accountability.
Priorities will vary according to country and need. In Azerbaijan,
the emphasis is likely to be on projects that stimulate development,
assist income-generation and improve infrastructure. In Georgia,
initiatives to support sustainable agriculture will be prominent,
as will infrastructure enhancement.
In Turkey, the stress will be on projects that boost income-earning
potential, support the development of the agricultural sector
and raise the capacity of communities to help themselves. There
will also be programmes focusing on environmental care in protected
By February 2003, BTC expects to have identified suitable projects.
Successful applicants will be notified in the following months.
Small-scale projects are expected to begin by May, with the major
programmes likely to get underway during the second half of the
A parallel investment initiative focusing on environmental issues
is also in preparation, with an emphasis on projects that promote
biodiversity across the region. Details of this Environmental
Investment Programme (EIP) will be announced early in 2003.
Environmental issues and concerns have proved to be decisive
factors in determining the route that the BTC pipeline will take
Three options were identified originally. One was ruled out largely
because it went through a designated national park. A second
was excluded for a mixture of geological and security considerations.
The third avoided national parks and was deemed the least disruptive
to the environment by local and international experts, especially
after a number of changes were introduced to reflect local concerns.
Known as the Central Corridor, this route takes the pipeline
within 15 km of the spa town of Borjomi - the biggest health
resort in Georgia - and its nearby springs, which serve as the
source of Borjomi mineral water. Famous for its therapeutic and
drinking qualities since the early 19th century, Borjomi mineral
water today is an expanding business and an important source
of foreign exchange earnings for Georgia.
The proximity of the pipeline to such an environmentally sensitive
area prompted BTC to undertake extensive studies to understand
any potential risks to the water aquifer - the deep limestone
formation from which the water is extracted. These studies found
no threat, partly because of natural defences - any oil spill
could not travel in a downwards direction because the upwards
pressure from the aquifer will always be far greater - and partly
because the BTC partners are committed to providing additional
A number of measures have already been identified. They include
the installation of double the number of valves along this section
of the pipeline as opposed to the number required by international
practice, the use of thicker pipe, the fitting of sensors to
detect illegal excavations or third-party interference with the
pipeline, the establishment of a local team to monitor the pipe
on a daily basis, the construction of all-weather roads to improve
access, and the recruitment and training of local oil spill response
staff using equipment permanently based in the area. There will
also be a detailed oil spill response procedure for each kilometre
of pipeline in the Borjomi region.
For Georgia, the BTC and SCP projects offer the opportunity to
make a decisive break with the past, a chance to "ensure
Georgia's energy and political security," in the words of
President Eduard Shevardnadze, and a chance to set a new standard
for foreign investment in the republic. The projects will also
deliver significant benefits through employment, enhanced energy
supplies, transit fees, and community and environmental investment
programmes. But nothing will have higher priority than the safety
of Borjomi's precious resource.
The Sangachal Sanctuary
When bulldozers moved in to clear a huge 800-hectare site as
part of the first phase of the Sangachal terminal expansion in
Azerbaijan earlier this year, some unusual members of the local
population slept peacefully through it all.
Sangachal, near Baku, is being prepared to receive increased
quantities of crude oil from the Azeri-Chirag-Gunashli (ACG)
cluster of fields in the Caspian Sea. As part of the first phase,
two large 800,000-barrel oil storage tanks are being built at
the terminal and three new pipelines (two oil, one gas) linked
into the terminal. But as the environmental and social impact
assessment process conducted prior to the start of construction
revealed, the terminal is also home to a rare and vulnerable
species of reptile known as the spur-thighed tortoise (Testudo
The tortoise colony at Sangachal, which hibernates in winter,
might easily have been injured during the initial excavation
work. Instead, it has become the subject of a wide-ranging programme
of conservation and education. This is designed to protect and
grow the tortoise population and also to encourage understanding
and awareness among the wider population in Azerbaijan.
The centrepiece of the project is a nursery unit in which future
generations of tortoises will be hatched and reared before being
released into the wild at a rate of up to 100 a year. Another
feature is a walk-through visitor centre where people can learn
about the tortoises without damaging their fragile habitat.
The knowledge being gained from this project is now being passed
on to others, including local schoolchildren and construction
teams working on the new oil and gas pipelines from the ACG fields.
A study describing the project's experience will be shared with
the scientific community at a later date through the publication
of a paper in an appropriate journal.
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AI 10.4 (Winter 2002)
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