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The time has come for the international community to exercise its influence over the Georgian Government and to return it to the track of human rights protection and market economy development.
Aysel ALLAKHVERDIEVA
LLM in International Human Rights Law, University of Essex
(Great Britain).
THE BAKU-TBILISI-CEYHAN PIPELINE IN THE CONTEXT OF
HUMAN
A b s
This article considers human rights protection, as well as the complicated legal collisions associated with this problem that have arisen during the building and operation of the Baku-Tbilisi-Cey-han (BTC) pipeline. It analyzes both the Inter-Governmental and Host Government Agreements on the BTC relating to the
RIGHTS
r a c t
content, procedures, and mechanisms of human rights protection. In addition to describing the main obligations of the BTC International Consortium and the Republic of Azerbaijan with respect to human rights, the author also offers her vision of ways to improve the regulatory base of this project.
I n t r o d u c t i o n
Building the Baku-Tbilisi-Ceyhan (BTC) oil pipeline was an important stage in implementing the Contract of the Century entered as early as 1994 by the Republic of Azerbaijan and world oil companies. Its introduction into operation made it possible to transport crude oil from the Azerbaijani sector of the Caspian Sea to the Turkish port of Ceyhan located on the Mediterranean coast. The BTC crosses Azerbaijan, Georgia, and Turkey and is the second longest oil pipeline in the world.1 The consortium consists of eleven oil companies headed by the largest shareholder, British Petroleum (BP). The building and launching of the BTC is one of the largest investment projects for Turkey and Azerbaijan and the largest for Georgia.2 The BTC is important for the three countries because its
1 See: M. Piskur, “The B.T.C. Pipeline and the Increasing Importance of Energy Supply Routes,” Power and Interest News Report, 2006, available at [http://www.pinr.com/report.php?ac=view-report&report-id=537&language-id=1],
10 March, 2007.
2 See: The BTC Inter-Governmental and Host Government Agreements (LONDON 186.702.2), available at [http:// www,bakuceyhan.org.uk/correspondence/BP_re_legals_sept_02. p3], 10 March, 2007.
operation will make it possible to receive revenue in amounts sufficient for making large investments in the economy.3
However, some social and legal aspects, such as taking into account the interests of the ordinary people living along the BTC route and ensuring protection of their rights, should not be ignored when implementing these large-scale regional projects. This article focuses precisely on the legal collisions that are arising and could arise in the foreseeable future during operation of the BTC with respect to human rights protection.
Provisions of the Neutral Legal Regime of the BTC
Azerbaijan, Georgia, and Turkey, which signed an agreement on the BTC in February 2004, are currently facing challenges relating to the fate of the foreign investments in this project. The matter concerns such perpetual problems as corruption, political instability, poverty,4 unemployment,5 ongoing conflicts, and the non-observance of human rights. This means that a special legal regime must be created in those countries where the member states of the BTC Consortium are operating. The Consortium members and Project member states have assumed obligations under an Inter-Governmental Agreement (IGA) signed by all the Project participants, as well as under a Host Government Agreement (HGA), including a Security Protocol, Joint Statement, and BTC Obligations on Human Rights Protection called “provisions on stabilization.” These documents envisage that the signatories may not change their policy or priorities under earlier agreements without the preliminary consent of the other parties.6
Investment guarantees may be ensured in the Republic of Azerbaijan by applying several mechanisms, in particular:
1. Giving the HGA a higher status than other laws, apart from the Constitution. If a conflict arises with a future law, the HGA takes precedence.
2. Using mechanisms for distributing investment risks, such as tax payments, preferential rates, and legislation amendments.
The first of the two mechanisms presented above is more reliable for the foreign investor, which is the Consortium. As a result, the foreign investment process will remain unchanged throughout the entire period the contract on foreign investments is in effect. If misinterpreted, the first alternative could give rise to several human rights problems, which we will discuss below. The second alternative does not envisage the use of such reliable guarantees for protecting the Consortium’s interests. Azerbaijan, as we know, chose the first alternative.
3 See: H. Boyd-Carpenter, W. Labadi, “Striking a Balance: Intergovernmental and Host Government Agreements in the Context of the Baku-Tbilisi-Ceyhan Pipeline Project,” Lit Online. A Supplement to Law in Transition (Autumn 2004), European Bank for Reconstruction and Development, available at [http://www.ebrd.com/pubs/legal/lit042e.pdf],
15 March, 2007.
4 Azerbaijan, for example, “is a low income country with Gross National Income (GNI) per capita of US $710; in 2001, some 50 percent of the population lived in poverty and 17 extreme poverty” (The World Bank Country Briefs: Azerbaijan, September 2003, available at [http://Inweb18.worldbank.org/ECA/eca.nsf/ExtECADocdyUnid//EF8CF10B9FE9 F06385256D50067D4BB?Opendocument], 2 March, 2007).
5 In Azerbaijan, for example, “the oil sector accounts for the most of the country’s GDP, however, it employs only one percent of the labor force” (Azerbaijan at the Crossroads of Commerce and Culture, Embassy of the United States in Azerbaijan, available at [http://baku.usembassy.gov/sect/reports/AZERBAIJAN%20-20A%20Crossroad%20f20Commerce %20and%2020Culture.pdf], 1 March, 2007).
6 See: Human Rights on the line: The Baku-Tbilisi-Ceyhan Pipeline Project. Amnesty International U.K. (May 2003), Ch. 2, p. 10.
Azerbaijan’s Human Rights Obligations under Host Government Agreements
The government of the Republic of Azerbaijan grants the Consortium the right to implement the project, pledges not to engage in any actions capable of slowing it down, grants the right to allot land plots for building and operating the BTC, and guarantees the freedom of import and export and the use of foreign workforce. The Host Government Agreement emphasizes that the state is obligated not to violate the rights set forth by the project agreement, including any actions or inactions that might hinder or limit the amount of oil pumped or transported by means of corresponding facilities (with the exception of cases when the continued operation of the facilities without immediate corrective action could pose a threat to public safety, human health, and the environmental).7
Several questions arise when taking a closer look at this excerpt from the HGA. In particular, what will happen if a situation is ongoing but does not pose a permanent threat to public safety, as, for example, trafficking in women along the BTC route?8 It should be noted that the problem of trafficking has recently become urgent, although it still does not pose a perceptible threat. According to the HGA, Azerbaijan should wait until this problem becomes truly urgent in the regions in question and poses a real threat to public safety. Only then will it be possible to adopt immediate measures to find a solution to the situation. Here we could counter that there is nothing stopping the Azerbaijani government from putting a corresponding law into effect on trafficking control. But the problem is that Azerbaijan will also have to draw the Consortium into the fight against trafficking.
In compliance with the HGA, the Consortium assumes all the operation9 and transportation10 risks. It is true that the state, according to the HGA, cannot demand the right to refine oil and own the facilities11 envisaged in the agreement, but the oil will always be owned by the state.
In compliance with the HGA, if amendments are made to the law, the government is obligated to pay the Consortium a certain amount of compensation, whereas if the latter does not agree to recognize the amendments to this law, the compensation is not envisaged. The question arises of what to do if the Consortium does not agree to recognize these amendments. What should Azerbaijan do in this event? In all likelihood, Azerbaijan will have to resort to the help of an international arbitration court. The so-called Kuwait case12 is characteristic in this respect, when the court took into account the fact that, due to the changed circumstances, the need arose for introducing corresponding changes into the contract. In other words, the content and essence of an agreement may be adjusted in keeping with the changed circumstances.13 In this sense, the Kuwait case could be a precedent when reviewing similar lawsuits, including possible lawsuits from the Consortium with respect to human rights violations.
In turn, Amnesty International indicates that international law draws a clear difference between standard state practice, for example, the introduction of changes into tax policy, or the strengthening of social protection of an employee, and state policy leading to depreciation of the cost of the project. Only in the last case is compensation envisaged for violating human rights for the protection of property.14 In this respect, it would be expedient for the sides concerned to review the possibility of including provisions in the HGA that envisage the right to compensation.
7 See: BTC Host Government Agreement with the Republic of Azerbaijan, Supra. No. 15, Art 5.2 (iii).
8 See: Human Rights on the line, Supra. No. 19, p. 22.
9 See: Ibid. Art 2.1.
10 BTC Host Government Agreement with the Republic of Azerbaijan, Supra. No. 15, Art 8.4 (iv).
11 Ibid. Art 4.1 (iv).
12 See the text of the award by the Arbitration Tribunal (presided over by P. Reuter) in Arbitration between Kuwait and the American Independent Oil Company (AMINOIL) 21 ILM 1982, pp. 976 ff.
13 Ibidem.
14 See: Ibidem, p. 5.
The Consortium’s Human Rights Obligations
In keeping with the obligations adopted by the Consortium, the contractors are obligated to build and operate the BTC oil pipeline in compliance with the laws of Azerbaijan reflected in the corresponding agreements between the government of Azerbaijan and the Consortium. Moreover, the Consortium is obligated to carry out a detailed evaluation of the risks and hold consultations with the public when preparing its Environmental Impact Assessment in compliance with the requirements of the Host Government Agreement. Finally, the HGA offers a detailed program of analysis, public commentaries, and approval of specific plans on environmental protection and public interest awareness.15
The Joint Statement of the Consortium signed by the member states obligates the Consortium to act in keeping with international human rights protection standards when implementing the project.16 Moreover, in September 2003, the Consortium perfunctorily confirmed the fact that it will demand compensation from the Governments concerned in issues relating to the obligations of the host Government under international agreements on human rights protection and other agreements to which it is party.17
We will note that it is to the Consortium’s greater advantage when its investments are underpinned by corresponding provisions of the law. In turn, Azerbaijan is interested in acquiring investments which the country would otherwise not have acquired, as well as the revenue concurrent to their use. Theoretically, if the host Government is guided by efficiently functioning laws and corresponding mechanisms of their implementation, the parties concerned will only have to follow the provisions of the contract. But, in most cases, the mechanisms for executing the current laws are extremely inefficient, as is currently the case with Azerbaijan. This is precisely why a host government agreement is necessary.
Inter-Governmental and Host Government Agreements in International Law
The fact that Inter-Governmental and Host Government Agreements must be ratified by the country’s Parliament in order for them to come into force confirms their compliance with the practice of international agreements. In order to gain a clearer understanding of this issue, the mechanism for ratifying international agreements envisaged by the Constitution of Azerbaijan must be reviewed, as well as the Law of the Republic of Azerbaijan on the Conclusion, Execution, and Denunciation of International Treaties of the Republic of Azerbaijan.18 If the treaty contains laws that contradict or are not envisaged in Azerbaijani legislation, the Ministry of Justice must present an experts’ evaluation.19 The president has the authority to sign any international agreement or delegate this authority to the prime minister, foreign minister, or heads of the power structures.20 The law does not envisage that the president has the right to delegate this authority to the head of an oil company, for example, the State Oil Company of the Azerbaijan Republic (SOCAR).
Several stipulations must also be made regarding the fact that Inter-Governmental and Host Government Agreements are considered not simply agreements, they are essentially investment
15 The results of these reviews are now available at [www.Caspiandevelopmentandexport.com].
16 BTC Co partners are signatory to the Universal Declaration of Human Rights, the European Convention on Human Rights, OECD Guidelines for Multinational Corporations, Voluntary Principles on Security and Human Rights, etc.
17 See: BTC Human Rights Undertaking, September 2003, Art 2 (b), available at [http://www.bp.com/genericarticle. do?categoryId=9006628&contenId=7013497], 8 March, 2007.
18 The Constitution of Azerbaijan was adopted on 12 November, 1995 by the Referendum of the Republic of Azerbaijan and amended by the Referendum on 24 August, 2002. The Law of the Republic of Azerbaijan on the Conclusion, Execution and Denunciation of International Treaties of the Republic of Azerbaijan (LOCEDIT) was signed on 13 June, 1995.
19 Law of the Republic of Azerbaijan on Conclusion, Execution and Denunciation of International Treaties of the Republic of Azerbaijan, adopted on 13 June, 1995, Art 4, available at [http://www.consulting.viniva.az], 5 March, 2007.
20 See: Ibid., Arts 6 and 7.
agreements, therefore any action taken by arbitration courts on investment disputes applies to them, which differs from the practice of commercial arbitration. The thing is that investment arbitration courts examine disputes between the state and a private structure, which are decided in keeping with the terms reached between the sides, as well as according to the principles of international public law. Commercial arbitration, on the other hand, is private in nature and does not envisage the state’s involvement in this process, nor does it go beyond the dispute between the two sides.21 Taking into account the fact that international documents do not envisage the cancellation of arbitration provisions in an investment agreement, it can be presumed that such arbitration is permitted in keeping with the principles of international public law.
At the same time, Inter-Governmental and Host Government Agreements cannot be viewed as laws, since they are ratified by parliament in the same way as international agreements are ratified. A country signatory to an Inter-Governmental Agreement may lodge a complaint with an international court against another country. This creates a contradiction in recognizing IGAs and HGAs as international agreements. From the aforesaid, it can be concluded that inter-governmental and host government agreements are an interesting hybrid of all three factors.
Misgivings about the Implementation of the BTC Project
These misgivings, in our opinion, are of a long-term nature and can be briefly formulated in the following theses:
There is no point in the companies concerned assuming obligations, the consequences of which have not been fully assessed.22
The Consortium should not close its eyes to possible violations of obligations regarding human rights.23
Below are three documents related to this problem:
1. The Joint Statement signed by the heads of the three states confirms that the Project will be implemented in keeping with international obligations on human rights protection.
2. The Security Protocol, also signed by the heads of the three states, confirms the obligations to ensure security in keeping with the international agreements,24 which is definite progress in this area.
3. Finally, the matter concerns the BTC Obligations on Human Rights Protection adopted on 26 September, 2003 and signed only by the Consortium. Most nongovernmental organizations continue to doubt the efficacy of this document, believing that its provisions are nonbinding on the governments of the countries concerned. The legal status of these obligations within the framework of the project agreements remains ambiguous.25 This means that the document is vague in the legal respect both for the project investors and for the structures and participants involved in the project.26
Based on the aforesaid, I would like to draw the attention of researchers and practical workers to the following aspects.
21 This was argued by the U.S. Government (see: “Methanex Corporation v. United States of America,” in: N. Blackaby, “Public Interest and Investment Treaty Arbitration,” Transnational Dispute Management, Vol. 1, Issue 1, February 2004).
22 See: H. Boyd-Carpenter, W. Labadi, op. cit., Supra, No. 10, p. 6.
23 BTC is signatory to OECD Guidelines (see: BTC Joint Statement, para. 5, BP Caspian, available at [http:// www.bp.com/genericarticle.do?categoryId=900668&contentId=7013497], 4 March, 2007).
24 See: H. Boyd-Carpenter, W. Labadi, op. cit.
25 See: BTC Pipeline (October 2003), Baku-Tbilisi-Ceyhan Co., p. 17, available at [http://www.bakuceihan.org.uk/ publucatins/Equator_Principlec.doc], 1 March, 2007.
26 See: Ibid., p. 17.
Agreements such as HGA and IGA endow the Consortium with certain powers (for example, the right to compensation for violation of a provision in an HGA on economic equilibrium). These agreements are followed by the BTC Obligations on Human Rights Protection and the Security Protocol. This results in ambiguity with respect to their application, which could have been avoided if standard rules or obligations were set forth. Therefore, it is in the interest of all the parties concerned to make corresponding corrections to the texts of the original agreements rather than draw up new BTC documents.
The BTC Obligations on Human Rights Protection are a unilateral agreement signed only by the Consortium. So these Obligations are non-binding on Azerbaijan, which may appeal to the “stabilization” provisions of a Host Government Agreement if laws on environmental protection and public interest awareness are not observed, should this contradict the commercial interests of the State Oil Company of the Azerbaijan Republic.
The BTC Obligations on Human Rights Protection create ambiguity and cancel the rights of a third party, since the governments of the host countries and the Consortium are the only beneficiaries.27 Nor are the direct rights of citizens envisaged.28
The BTC Obligations on Human Rights Protection set forth that the Consortium shall not rely on the right to compensation in compliance with the provision on “economic equilibrium.” This provision is not cancelled if the matter concerns the actions of third parties, although it is invalid for all the other parties, which, naturally, implies discrimination.
The BTC project documents, including the BTC Obligations on Human Rights Protection, do not address issues relating to the Consortium’s unlimited access to land and water.29
C o n c l u s i o n
The Contract of the Century and New Oil Strategy are symbols of Azerbaijan’s prosperity, its integration into the world economy and, most important, a foundation for creating a rapidly developing, strong, and democratic Azerbaijani state in the 21st century. In this respect, the Baku-Tbilisi-Ceyhan oil pipeline, as well as the Baku-Tbilisi-Erzurum gas pipeline, have, in addition to their technical-economic importance, an immense political role and international significance.
At the same time, it should be noted that during globalization and universal world cooperation, human rights are demanding universal understanding, recognition, and application throughout the world. This is precisely why this article undertook the task of analyzing both international acts (IGA) and the intrastate (HGA) regulatory base of human rights in the context of building and operation of the BTC. Finding the correct and efficient balance of human rights between these legal systems and reflecting the optimal versions of content and legal procedures, primarily in the regulatory documents on the BTC, helps to avoid declarativity and turning human rights regulations into a kind of scale of social values.
The problems mentioned in this article on observing human rights within the BTC project must be resolved quickly and fully. At the same time, it is difficult to agree with the opinion of several nongovernmental organizations that the current situation involving the BTC may create obstacles to implementing the Project and pose threats to the well-being of the citizens of the project’s member states.
Implementation of the BTC project can bring enormous dividends to Azerbaijan’s economy, but this requires more precise and clearly formulated legal provisions. A balance must be maintained between the stability and precision investors are striving for and the protection of citizen interests in the project’s member states.
27 See: Chapter 4.4.3 of the paper.
28 See: Ibidem.
29 See: Chapter 4.1.4 (f) of the paper.
