10.4 BTC Section - Between two seas Progress on the BTC Pipeline Project by Mike Townshend, CEO, BTC Pipeline Co.

Winter 2002 (10.4)
Pages 90-95

BTC Section - Between two seas
Progress on the BTC Pipeline Project

Above: The aim of BTC is to make sure no owners or users of the land should be disadvantaged by the pipeline.

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 respects.

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 parliaments concerned.

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 awareness.

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 months.

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 aim.

Acquiring the Land Rights
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.

Photos (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 municipal bodies.

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 issue.

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 contractor.

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 medical facilities.

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 is worst.

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 development programmes.

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 areas.

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 year.

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.

Borjomi: Protection in Action
Environmental issues and concerns have proved to be decisive factors in determining the route that the BTC pipeline will take through Georgia.

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 reassurance.

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 graeca).

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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