Extractive Industries (EI)
The oil and gas industry in Central Asia and the Caucasus has brought considerable economic development to Georgia. Given Georgia’s geographical significance in oil transport routes, the IFIs have been active in EI funding in the country. Between 1994 and 2007, 20% of EBRD financing in Georgia went to the oil and gas sector, according to data from the bank’s list of signed projects. This figure is skewed heavily in favor of pipeline financing. In fact, 16% of total EBRD funds were for the BTC and South Caucasus pipelines with the remaining 4% allocated toward an oil field and port. IFC lending has followed EBRD patterns with substantial investment in the BTC pipeline and an early $6 million equity investment in Ninotsminda Oil Company. The World Bank has opted for more diversification, although 15% of its active projects in March 2008 were in energy and mining. Overall, the extractive sector has constituted roughly 10% of World Bank support to Georgia.
Alongside economic growth and IFI investment, social and ecological concerns have arisen in Georgia. As a result, BIC pays close attention to extractive developments, monitoring environmental impacts, societal concerns, revenue transparency, and pipeline construction.
EI Transparency Issues
Georgia possesses oil, gas, and other mineral deposits, as well as major energy transport lines. In 2004, Georgia expressed an intention to join EITI in a memorandum with the International Monetary Fund. However, although it cosponsored the EITI United Nations resolution, Georgia has yet to join the initiative. Its role in oil and gas transport makes it an integral part of the extractive industry chain, but EITI has not been broadened to include transportation revenues. Both the Baku-Tbilisi-Ceyhan (BTC) and South Caucasus pipelines run through Georgia.
BIC and other civil society organizations are advocating for the disclosure of contracts and agreements in IFI-funded projects. The Caspian Development Advisory Panel (CDAP), British Petroleum’s independent advisory panel, requested that BP report BTC data, going beyond the requirements of EITI. Another major victory was the disclosure of the Production Sharing Agreement (PSA) and Host Government Agreements (HGAs) for the BTC pipeline project at the request of the IFC. These agreements are usually kept confidential. For example, although BP also has a significant stake in the South Caucasus pipeline (SCP), which received EBRD funding, similar disclosures have not been made. BIC believes the IFIs should follow the BTC example and require contract and revenue disclosures in all future extractive investments.
EI and Project Developments
Georgia has been a site of major pipeline construction in recent years. These projects can be especially problematic for the environment and for local communities. BIC identifies projects posing significant risks and eliciting local concern as “problem projects.” A complete list of these projects, not only in the extractive industries, can be found in BIC's Problem Projects section. A few projects are summarized below.
Problem Projects
Baku-Tbilisi-Ceyhan (BTC) Pipeline
Bank: IFC, EBRD
Project Description: The $3.6 billion project for the construction of the BTC pipeline received $500 million in funding from the IFIs. Opened in 2005, the pipeline runs through Azerbaijan, Georgia, and Turkey and carries oil from Azerbaijan’s Chirag and Gunashli fields, which have also received IFI funding.
Civil Society Concerns: The extensive pipeline has caused considerable concern among civil society actors. By early 2008, the Compliance Advisor/Ombudsman (CAO) of the IFC had received 34 complaints about the BTC project, 31 of them from Georgia. As of February, two complaints were under assessment. Residents in Georgia have also filed complaints with the EBRD’s Independent Recourse Mechanism (IRM), alleging that they were denied compensation for damages. After a complaint in 2007, BTC Company refused to participate in a problem-solving initiative, despite recommendations by the IRM. For more information, see BIC’s BTC Problem Project page.
Lukoil Overseas – South Caucasus Pipeline
Bank: EBRD
Project Description: EBRD has provided a $70 million senior loan to Lukoil for the construction of the South Caucasus Pipeline through Azerbaijan and Georgia.
Civil Society Concerns: Like the BTC pipeline, this project entails resettlement of local populations and the disturbance of natural habitats. More information is available on BIC’s SCP Project page.
Projects Under Watch
Besides problem projects, BIC also follows IFI activities or possible activities, which concern civil society actors but either have not been financed by an IFI or whose risks have not been adequately explored. These projects are listed below.
pipelines
Although Georgia’s own oil and gas deposits are not substantial, its geography renders it a major transport route for resources from the Caspian region. Both the BTC and South Caucasus Pipelines run through Georgia, connecting it to plans for European pipelines, such as Nabucco.
hydropower
Georgia’s electricity demand is largely met through hydropower plants. IFIs, like the World Bank and EBRD, have provided various forms of assistance to Georgia’s hydropower industry. In August 2007, the World Bank approved a $3 million grant from the Carbon Fund to repair small run-of-river hydro plants (SHP). UNDP and USAID are also financing the project, as is a loan from the Bank of Georgia backed by EBRD.
Hydro Rehabilitation Project (WB website)
Public Information Document, Small Hydro Rehabilitation Project, World Bank Report No. 40756, August 9, 2007 (WB website, Acrobat pdf)
Additionally, EBRD has funded the Enguri hydropower plant, Georgia’s main power source. Funding of the first phase came in 1997 with a $38.75 million loan. After its completion in 2006, the second phase began with a loan extension of $10 million.
Enguri Hydro Power Plant Rehabilitation Project (EBRD website)
Other project proposals, such as possible World Bank participation in the Khudoni Hydro Power Plant, have raised concerns among civil society actors. As a result, hydropower projects are under watch.
Khudoni Dam (CEE Bankwatch website)
Country Strategies
World Bank Group
The World Bank approved the 2006-2009 Country Partnership Strategy (CPS) for Georgia in 2005. Major development targets include infrastructure, education and social services, and public sector improvements, particularly the budgetary process.
Georgia Country Partnership Strategy, World Bank, October 26, 2005 (WB website, Acrobat pdf 12.38 MB)
European bank for reconstruction and development
The latest EBRD strategy for Georgia, approved in 2006, identifies the investment climate, infrastructure, and the enterprise and financial sectors as its main objectives.
Strategy for Georgia, EBRD, November 21, 2006 (EBRD website, Acrobat pdf 423 KB)
Asian development bank
Georgia joined the Asian Development Bank in 2007, and its Interim Operational Strategy was approved in March 2008. The strategy focuses on municipal, transport, and energy infrastructure and leaves open the possibility for energy efficiency projects as part of the ADB’s carbon market initiative. Lending will focus on the private sphere.
Georgia: Interim Operational Strategy 2008-2009, ADB, January 2008 (ADB website, Acrobat pdf)