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DEVELOPMENT: Georgia Oil Pipeline Hurting Local Investment – Group

Emad Mekay

WASHINGTON, Oct 2 2003 (IPS) - The proposed route of a controversial oil pipeline in Georgia that could have World Bank support is scaring away investors in the country’s pivotal mineral water industry, threatening to cripple the local economy, documents released by protest groups show.

The international organisation Friends of the Earth (FOE), which leaked the documents, says they demonstrate the impact of the proposed Baku-Tbilisi-Ceyhan oil pipeline on the crucial mineral water industry in the Borjomi area of Georgia. FOI is demanding that the World Bank review its plan to finance the project.

But an official with the bank’s private sector arm, the International Finance Corporation (IFC), says the pipeline already includes a strong mitigation programme and extensive prevention and response measures to avoid oil spills in the highly sensitive region, and to cushion any negative effects on the local communities.

The IFC’s board is scheduled to vote on providing 300 million dollars for the 3.7-billion-dollar project at the end of October. But the bank’s investment could run higher if it agrees to provide loan guarantees.

The pipeline has drawn lots of fire from environmentalists and local groups because it passes through the Borjomi region of Georgia, home to mineral water and tourism industries that are among the few promising sectors of the nation’s economy.

According to a letter dated Nov. 27, 2002 from French consumer-products maker Groupe Danone SA to the Georgian Glass and Mineral Water Company (GG&MW) and seen by IPS, the food company withdrew from a potential investment in the water firm over concerns about ”the layout of the oil pipeline in Georgian Territory".

The Baku-Ceyhan pipeline, which connects offshore oilfields in the Caspian Sea with a tanker terminal at the Turkish port of Ceyhan on the Mediterranean Sea via Azerbaijan and Georgia, might cross some of the fields where spring water is collected and extracted to produce Borjomi Springs and Borjomi Light water.

GG&MW is a successful mineral water company employing hundreds of people and contributing significantly to the local economy, but in the letter the French company says that it cannot invest in the area because of the new risk.

"The goodwill of the trademark and the quality of the (water) are of paramount importance in our assessment of an investment in a water company,” it says. ”In the given circumstances, we cannot proceed with the evaluation of this project unless such a threat on both the (water) and indirectly the brand equity has been removed."

According to another document, the Monitor Group, an international strategic consulting firm based in Cambridge in the U.S. state of Massachusetts, found that the pipeline could cripple the water industry.

"The very presence of the pipeline will have a significant detrimental impact on GG&MW,” Monitor said. ”Market research indicates the presence of the BTC pipeline in the Borjomi region is likely to detract from … very positive brand attributes.”

The project, which will eventually transport one million barrels a day of oil from the Caspian – an inland sea whose shores also touch Russia and Iran – has also attracted criticism for the role played in it by taxpayer-funded public lending agencies, like the World Bank.

"These revealing documents show that oil takes precedence over jobs and the environment in the World Bank’s lending portfolio," said Carol Welch, director of international programs at Friends of the Earth in Washington.

"If the World Bank approves financing for the BTC, it will shoulder total responsibility if Georgia’s mineral water industry collapses," she added in an interview.

The water industry is one of the most significant taxpayers in the region, contributing some 70 percent of the local budget, according to the local mayor, quoted by FOE. The Borjomi region also features better infrastructure than other areas of Georgia.

”A lot of that is a result of (having) a successful enterprise in the area, including tourism and water,” Welch said. ”If you cripple the mineral water industry, you are totally crippling the socio-economic health of the region.”

But an IFC employee said the prevention measures being taken by the project proponents – oil companies BP, Italy’s Eni, Statoil of Norway, California-based Unocal and France’s TOTAL – are ”quite extraordinary”, and the area’s water would not be at risk.

”There are risk mitigation for leaks along the length of the pipeline but there are very specific extra ones for that (Borjomi) section,” said Corrie E. Shanahan, IFC senior communications officer.

”There’s a whole bunch of extra safeguards, everything from the width of the pipeline – it’s thicker there – to the embankments of the rivers (being) reinforced,” she added.

The IFC’s own website points out the importance of the water industry to the area. "The Borjomi area is famous as a health centre, tourist destination and the home of the GG&MW. The plant is in the process of upgrading, including the addition of other types of water and the promotion of the product in the international market."

Despite the controversy around the project, the pipeline has already won the political backing of the U.S. government, a mighty force in the bank and, increasingly, in the countries the pipeline will travel through.

For example, the Georgian Armed Forces have been receiving U.S. training and support to the point that Washington’s growing influence in the former Soviet republic has alarmed neighbouring Russia.

Russian Foreign Minister Igor Ivanov said recently the U.S. military presence in Georgia could "further aggravate the already complicated situation" in the region, reported the Associated Press.

The pipeline fits squarely into Washington’s long-range policy of building a secure oil supply in Eurasia as it steers away from a dependency on Middle East oil, although the area contains only four percent of the world’s reserves.

Although oil flowing through the pipeline will not be enough to dominate the market, it could play a significant role in setting oil prices, in the same way that North Sea oil did in the 1970s.