By KARL MATHIESEN
Climate Home
Billions in development loans at risk after international human rights watchdog strips Azeri membership for failure to increase transparency
A human rights watchdog suspended Azerbaijan’s membership on Thursday, casting doubt on billions of dollars worth of loans being considered for a pipeline linking the country’s gas fields to the EU.
The government of Ilham Aliyev has been repeatedly asked by the Extractive Industries Transparency Initiative (EITI) to lift restrictions on civil society organisations. On Thursday the EITI board, which meets in Oslo, decided that the regime had run out of time.
Azerbaijan is consistently ranked as one of the world’s most corrupt countries. In February, 22 human rights organisations wrote to the EITI board urging the suspension of Azerbaijan, which the letter said had failed to meet the requirements set for opening up the country to non-governmental groups.
The EITI oversees transactions and promotes transparency in commodities industries. Most large oil companies, countries and development banks are members.
Membership provides guidance for development finance for the extractives industry. The World Bank uses EITI standards and provides recipients with funding to help implement them.
The World Bank and Asian Infrastructure Investment Bank have together pledged US$1.2 billion in support of the Southern Gas Corridor (SGC), which will link Azerbaijan with southern Italy.
The World Bank’s loan is divided into $400m for the Turkish section of the pipeline (known as the Trans-Anatolian Natural Gas Pipeline Project, or Tanap) and $400m will go directly to the Azeri government.
Other banks, including the European Bank for Reconstruction and Development (ERBD), are considering further large-scale financing. In total, the loans mooted amount to a reported $5.5bn.
It is unclear what the suspension will mean for this finance. The World Bank, ERBD and European Investment Bank, another potential loanee, were all contacted for comment but did not respond before publication.
When he was a managing director at the ERBD in 2016, Riccardo Puliti told Anadolou Agency that progress on implementing EITI standards was a condition of large financing.
“It is important for both Tap and Tanap, but it is particularly important for Tanap, because [Azerbaijani state owned energy company] SOCAR is so prominent in Tanap,” Puliti said.
Azerbaijan joins Yemen, the Democratic Republic of Congo, Tajikistan and Kyrgyzstan on a list of countries suspended from the EITI for consistent breaches of its guidelines.
The Southern Gas Corridor pipeline is estimated to cost $45bn. The EU supports the project, despite concerns raised by human rights groups over the implicit and financial support it will give to the Aliyev government.
Anna Roggenbuck, a policy officer at CEE Bankwatch Network, called on the EIB and EBRD to disengage from the project.
“Azerbaijani fossil fuels export projects like the SGC only fuel the autocratic regime in Baku as it intensifies its repression of civil society and media in the country,” she said.
Xavier Sol, director of campaign group Counter Balance, said: “EU leaders, who have long cited democracy and human rights as the cornerstones of modern day Europe, should recognise the EITI board’s decision for the stark warning sign it is. Knowing that any revenues from the Southern Gas Corridor project will only serve to entrench Azerbaijani president Ilham Aliyev’s regime, now is the time for Europe to think whether it is willing to put its highest energy bets on such partner.”
What is the Southern Gas Corridor?
BP calls it “arguably the global oil and gas industry’s most significant and ambitious undertaking yet”. It is a three part pipeline that, if completed, will carry gas from the Shah Deniz 2 oil field in Azerbaijan’s Caspian Sea through Georgia, Turkey, Greece, Albania into southern Italy.
The pipeline is supposed to reduce the EU’s dependence on Russian gas. Campaigners argue that it is likely to become a stranded asset as gas demand in Europe is predicted to remain stagnant. Many have raised concerns about deepening Europe’s financial and political cooperation with the autocratic Aliyev regime.
Total cost: Estimated at US$45bn
Timeframe: Construction is underway, due to be completed by 2020
Sections:
South Caucasus Pipeline (SCP) – Azerbaijan, Georgia
Trans Anatolian Pipeline (Tanap) – Turkey
Trans Adriatic Pipeline (Tap) – Greece, Albania, Italy
Ownership: At least 11 different companies are involved in the corporate ownership structures of the various sections. Major players include BP, Azerbaijan’s state oil company SOCAR, Turkish Petroleum, Petronas, Lukoil, Total and Snam.
Public finances: The European Bank for Reconstruction and Development, European Investment Bank and Asian Development Bank and are all considering publicly-backed loans for the development in excess of $500m each. The World Bank has approved an $800m loan.
Register of EITI BOARD decisions
Date: 09.03.2017
Reference: 2017-15/BM-36/BP-36-5-A
Description:
The Board welcomed the steps Azerbaijan had taken to meet the EITI Standard. It decided, however, that Azerbaijan did not fully meet the corrective actions related to civil society space set by the Board in October 2016 and was therefore suspended.
Where: 36th Board meeting in Bogota, Colombia
Based on: Requirement 8.3 EITI Validation deadlines and consequences
Reference documents
Internal:
Board paper 36-5-A
Azerbaijan Validation 2016 country dossier
Public domain:
Validation of Azerbaijan 2016
Documentation (Validation Report, MSG comments, initial data collection)
News item on the decision: EITI reaffirms its leadership on revenue transparency
Azerbaijan, Dropping Out of Transparency Initiative, Issues Challenge to Foreign Investors
By JOSHUA KUCERA
EurasiaNet
Azerbaijan President Ilham Aliyev at a 2014 ceremony inaugurating the Southern Gas Corridor. The project is a linchpin of the country’s long-term economic strategy, but it’s future has become less certain now that Azerbaijan has dropped out of the Extractive Industries Transparency Initiative. (photo: president.az)
Azerbaijan has decided to leave the Extractive Industries Transparency Initiative (EITI) after being suspended by the group for failure to meet the EITI board’s demands to ease restrictions on civil society groups.
The dramatic move by Baku will force international financial institutions into a difficult choice: either abide by their promises to condition financial support on the human rights guarantees of the EITI, or put geopolitically important energy projects at risk.
At an EITI meeting in October, the group’s board of directors said that Azerbaijan would have to carry out a number of reforms over the following four months in order to avoid suspension from the group.
On March 9, after another board meeting, the EITI said that Azerbaijan’s progress had been unsatisfactory and that it would be suspended: “While the Board welcomed that Azerbaijan had taken further steps to meet the EITI Standard, it was assessed not to have fully met the corrective actions related to civil society space set by the Board in October.”
Shortly afterwards, the State Oil Fund of the Republic of Azerbaijan issued a statement calling the EITI’s move “unfair” and that it was dropping out of the initiative. The statement suggested that the EITI had shifted the goalposts by expanding its demands from transparency in the energy sector: “The irrelevant facts introduced by different advocacy groups on various occasions show that the Initiative failed to stick to its original mission and objectives.” The statement continued:
In 2003 Azerbaijan has signed up to the principles of revenue transparency and revenue governance and remains strongly committed to those principles of good governance, transparency and accountability in extractive industries. Azerbaijan will continue to disclose all the information related to revenues received from extractive industries to the full extent. However, it is with a deep regret I have to officially announce that Azerbaijan is leaving EITI. I kindly ask the International Secretariat to remove Azerbaijan from the list of EITI implementing countries effective immediately. I wish you all success in your future endeavours.
Dropping out “was an emotional and definitely a fast decision,” said Gubad Ibadoghlu, an Azerbaijani economist and a member of the EITI board, in an email interview with EurasiaNet. “Unfortunately Azerbaijan took a path in solving this problem by totally avoiding it.”
The EITI is a coalition of states, oil companies, and non-governmental organizations aimed at improving the transparency of oil and gas revenues around the world. While its proscriptions are non-binding, international financial organizations like the World Bank and European Bank for Reconstruction and Development have pledged to take into consideration Azerbaijan’s EITI status in determining whether or not to grant it loans.
Azerbaijan is banking on international loans to help it bankroll the Southern Gas Corridor, a multibillion-dollar project by which natural gas would be shipped to Europe. The project is a linchpin of Azerbaijan’s long-term economic strategy.
But what impact dropping out of the EITI will have is unclear. In December, the Asian Infrastructure Investment Bank offered a $600 million loan for part of the project, and the World Bank promised another $800 million.
International financial institutions “have already decided to finance this project therefore, it does not seem Azerbaijan has much say in it,” Ibadoghlu said. But he added that the country’s credit rating, along with its international image, will take a hit nevertheless.
“The major investment decisions from multilaterals on the basis of profit have already been made, so the human rights angle plays an ultimately minor role,” said Nicholas Trickett, a researcher at the Center for Strategic and International Studies, a Washington, D.C. think tank. “SOCAR’s partners know that Azerbaijan doesn’t follow western business norms and that human rights violations are endemic,” he said, referring to Azerbaijan’s state energy company.
Leading up to the meeting, Human Rights Watch had called on the EITI to suspend Azerbaijan. “The Azerbaijani government is snubbing the EITI by ignoring its requirements for reforms and by systematically dismantling the country’s independent civil society,” said Giorgi Gogia, the group’s South Caucasus director. “Following numerous reviews and warnings, the EITI should suspend Azerbaijan’s further participation until the government makes serious, lasting changes to allow nongovernmental groups to operate freely in Azerbaijan.”
The National Resource Governance Institute, an advocacy group that works on the EITI, welcomed the decision to suspend Azerbaijan. “Ensuring protection for civil society in Azerbaijan, especially those working on EITI and natural resource governance, is now more critical than ever,” the group said in a statement.
“Azerbaijan should create an enabling legal and de facto environment for civil society, which includes enabling civil society organizations (CSOs) to freely access funding and opening space for public debate. Actions such as releasing prisoners who have been unjustly arrested, detained, tried, convicted and incarcerated on false charges charges—including NRGI advisory council member Ilgar Mammadov—would be important steps in the right direction.”