The Price of Progress


Tbilisi, Georgia—They closed the deal in the dead of night. At 3 a.m., after several days of intense, round-the-clock politicking, Georgia’s environment minister, Nino Chkhobadze, was summoned to the office of the president. Two hours after she arrived, a $3 billion oil pipeline project that she had resisted, and that hung on her signature, won initial approval.

Exhausted and disappointed, Chkhobadze emerged into the waning November night, facing the glare of TV camera lights, squinting—some say, crying. Later, she would remark, “The pressure came above all from the company, and it was pressure not only directed toward me, but also toward the president.”

The company in question is a consortium of 11 giants in the oil industry, headed by BP (formerly British Petroleum). For them, as for the U.S. government, gaining access to Georgia’s rugged territory has been critical to making a decade-old dream a reality: the construction of a 1,094-mile underground pipeline from Azerbaijan to Turkey. American officials see the project as the first major step toward forming an “east-west energy corridor” designed to bypass the Middle East. Starting in 2005, the pipeline is expected to pour millions of barrels of landlocked Caspian Sea crude into world markets. But first it must be built, and the terrain is foreboding, with basalt mountains, desert sands, and earthquake faults. In Georgia, a stretch of roughly 10 miles would pass near an important nature reserve, close to prized mineral water springs.

At times, the fate of the entire project has appeared to hinge on those 10 miles. Even today, with shipments of tubing piling up and surveyors marking land, the public institutions that would finance construction are debating whether to proceed. Some are expected to issue a decision within weeks.

The section in question would slice through a protected zone around Georgia’s Borjomi-Kharagauli National Park, an ecological treasure on a par with America’s most sacred preserves. According to the World Wildlife Fund, which opposes the plan, the area’s rich biodiversity is “highly sensitive” to human interference. The sharp-tasting mineral water extracted from Borjomi’s springs is so beloved throughout the former Soviet Union that émigrés have insisted on bringing it with them. In Brooklyn’s Brighton Beach, bottles of the water are an easy find in most grocery stores. Borjomi water makes up 10 percent of all Georgian exports, the single largest outgoing commodity.

News that the pipeline would run a million barrels of oil daily near Borjomi’s aquifer and around the national park has triggered dissent. In November, people protested in the streets of Tbilisi, the capital; local activists garnered support from the Dutch government and various international organizations. “We felt that change was possible,” says Tinatin Ninua, a student organizer who gathered some friends and sent a petition to the World Bank Group, a possible funder. “A lot of people thought the route did not reflect the interests of the Georgian people.”

As tensions rose late last year, a BP official, along with the head of Azerbaijan’s state oil company, wrote to Eduard Shevardnadze, Georgia’s president, pressing him to ensure that the government would accept the company’s Environmental and Social Impact Assessment, or ESIA. Doing so would mean the Georgian government agreed the pipeline would not pose an unreasonable hazard.

“One of the most critical items we discussed during our private meeting was the urgency of obtaining approval of the ESIA before the end of November,” reads the November 7 letter, which was leaked to a watchdog group. “Without this timely approval we cannot move forward with the construction phase and we will halt work . . . ” The memo also points out that any delay would “immediately” hinder investment in a second pipeline, designed to carry natural gas across the region—an alarming prospect for Georgia, which is in desperate need of secure access to fuel. Weeks later, when authorization looked questionable, Shevardnadze himself stepped in, hauling his environmental minister into line. “It was easier to make a decision when I got involved as president,” he told reporters. “It is in my interest that construction should start as soon as possible. I think nothing will interfere with this.”

The tempest over the pipeline’s potential environmental impact soon gave way to more immediate troubles. Recently, for instance, the biggest issue to rattle this small, mountainous country has been a proposal for raising the minimum wage—to approximately $55 per month. Many Georgians live without consistent electricity or regular heating or hot water. Woodstove pipes poke out of high-rise apartment windows, spewing black plumes. Unemployment is high. Refugees from stalemated wars crowd city hotels; rampant corruption and the policies that nurture it stymie economic development. Understandably, matters of the environment here can quickly start to seem abstract.

Yet if civic anger over the pipeline has died down, the issues have not gone away. Seventy percent of the project will be financed by public money—perhaps as much as $100 million of it from American taxpayers, according to one State Department official—and since a good portion of that money must serve the public interest, many potential lenders are moving cautiously. “It is an emotional issue in Georgia, and I think rightfully so,” says Shahbaz Mavaddat, associate director of the International Finance Corporation, a member of the World Bank Group. “We have to be convinced that the Borjomi route is the only viable route and will comply with our policies.”

For final approval from the Georgian government, BP’s consortium, the Baku-Tbilisi-Ceyhan Pipeline Company, must answer a series of questions about mitigation measures and alternatives. At this point, though, it seems almost certain the pipeline will cross the park’s outer safety line. Even so, some observers say, larger questions are sure to linger. These involve the painful trade-offs developing countries make when foreign investment compromises other long-term interests. They are about the friction between sovereign states and big business, about the relationship between people who host international projects and those who ultimately gain from them.

“Wherever the pipeline goes, you have to bring the people who live around it into the process,” says former U.S. ambassador John W. McDonald, whom Georgia invited to head a pipeline task force on the potential for peace in the region’s many ethnic conflicts. “Right now, I don’t see that happening as much as it could.”

The pipeline consortium’s Tbilisi headquarters presents a facade that is nondescript, even a touch decrepit. Behind a gate, sterling white SUVs branded with fluorescent company identity numbers disappear into a warehouse garage. Across the road, rusted Soviet-era cranes fight time and gravity in an empty lot.

The entrance—two glass doors framed with stainless steel—is around back. Upstairs, on the second floor, general manager Ed Johnson spreads a large map across a table in his spacious office. He points to several colored lines, each reflecting a suggested change to the current pipeline path that would avoid the nature reserve. He is calm and methodical as he talks through the options, none of them ideal. “No reroute is possible; there are no alternatives,” he concludes. But, he says, every effort will be made to prevent a single drop of oil from spilling. He lists some of the unique features added to the design, then says, “The Borjomi section of the pipeline is going to have the highest integrity of any pipeline in the world.”

Later, in an e-mail, Johnson disavows the notion that BP attempted a last-minute pressure play on Georgian officials. He says company workers began selecting the route in early 2000, consulting with the government and local contractors on ecological constraints. Since then, they’ve continued meeting with governmental and nongovernmental organizations alike, undergoing a 60-day disclosure period and including more than 3,000 pages of comments in its report last fall. “The [environment] ministry submitted many more questions at the end of October, which were addressed by the middle of November and supported by a concerted effort to make every technical resource available in person or by video conference to further clarify any questions posed by the government,” he wrote.

It is this kind of effort that has made company officials particularly sensitive to criticism—this, and the fact that there is no easy way to plot a safe route through the country. Running the pipeline north of the nature reserve would place it perilously near the separatist Abkhazia province, which is completely beyond the government’s control. Immediately south of the park lies the Karakaia mountain range, an obstacle Johnson says would mandate ecologically harmful construction. South of that is a territory plagued by landslides. And further south still is the restive ethnic Armenian enclave of Akhalkalaki, where infrastructure is poor, and where Russia operates a military base that could complicate any Georgian attempt to protect the pipeline.

Critics, however, say they don’t believe alternatives have properly been explored, or dialogue properly conducted. “The first product that BP came up with was really weak,” says a U.S. State Department official, referring to the initial environmental report. “What the U.S. government said to BP was, you need to take the Georgian concerns seriously, and the message to the Georgians was, you need to press BP hard, but know when you’ve reached the limit.”

Defining that limit has been difficult. BP may be one of the more environmentally sensitive oil companies, but the nature of the business remains a dirty one. Last month, a California environmental regulatory agency filed a $319 million lawsuit against a BP refinery for violating thousands of emission standards. The company has also faced harsh criticism for its operations in Alaska’s ecologically sensitive Prudhoe Bay, where it has been on probation since 2000 for illegally dumping toxic waste. According to a confidential company memo published in the Financial Times in January, leaks and well explosions at BP’s Alaska facilities occurred because the company was not “taking adequate safeguards.” As a result, the Alaska Oil and Gas Conservation Commission saddled BP with tough new rules this year, and a U.S. federal court granted inspectors unfettered access to BP property.

Given this record, environmentalists say, every attempt should be made to look beyond Borjomi as a passageway. They say BP has not formally explained why it can’t reasonably traverse the Karakaia mountains instead, when it is forging over similar ground elsewhere. Meanwhile, Nino Chkhobadze, the environment minister, tells the Voice that the oil companies should investigate tunneling through a short segment of the range. “We met with independent researchers at the Georgian Academy of Sciences,” Chkhobadze says. “They explained it would take only three months to conduct a proper study of this route.”

Last November, the company made a commitment to file its own report exploring the Karakaia alternative by March 21. That overdue paper has just been completed, insiders say, and it does not favor a change in route. Placing the pipeline there would mean traversing the Akhalkalaki district, which Shevardnadze and the company say is off limits. In a letter to international lenders this February, the president cited “security risks” that are “imposed by the proximity of a Russian Federation military base . . . ”

The memo was penned at BP’s urging, a company representative said, because the government was hesitant to put such politically sensitive concerns into writing. It’s not the first time BP officials have tried to keep Shevardnadze on message. In November, company officials wrote to him, “[W]e believe it may be necessary to inform experts who visit with you in the coming weeks that routes through this district are and will remain unacceptable.”

“Can you imagine anyone running a million barrels of oil a day anywhere near Poland Springs, or through the Yellowstone National Park?” That question has been troubling Badri Japaridze, vice president of Georgian Glass & Mineral Water Company, which owns the Borjomi brand.

Japaridze is soft-spoken, folding his hands over his desk as he speaks. His company, like the oil consortium and the Georgian government and countless other third-party groups, has hired a battalion of experts to evaluate the impact of a spill on the reserve’s delicate ecological balance and, more specifically, on the mineral water he sells.

Those experts draw wildly divergent conclusions depending on the side they work for, but no one argues “zero risk” is realistic. Inevitably, then, for Georgia and for Japaridze’s company, any pipeline running through the Borjomi-Kharagauli’s protected zone is, at least on some level, a roll of the dice.

Confronted with the prospect of a major international project, a destitute country like this one may have little choice. It’s unlikely such a large-scale oil venture would ever be conducted in or near Yellowstone. But, observers say, it is important to remember this is Georgia, not the United States.

“The pipeline is fairly essential for this country to move on,” says a Tbilisi-based Western development expert. “It pushes Georgia up on the geopolitical screen, and it sustains interest in the country’s political and economic transition. On the other hand, it does come with some environmental risk. So the country must ask itself: What marginal benefit is there between turning the project away based on that risk, or allowing it to proceed even if every last fail-safe may not be in place?”

Between those two options, there is, of course, middle ground. Finding it can be impossible when resources and time are scarce, and the deadlines of industry unforgiving. In the United States, a federal judge stripped BP of its privacy because the government believed the company could not be trusted to behave properly in the open market. The U.S. judge’s counterpart in Georgia will, in all likelihood, be unable to do the same should the need arise, because of the legal agreement the Georgian government has signed with the consortium.

Perhaps that is fitting. Georgian state officials have proven woefully incapable of providing basic services, and of keeping the public interest a priority. Who is to say they won’t act in just as chaotic and arbitrary a manner with foreign investors? For this reason, the Host Government Agreement, as it is called, is designed to overrule virtually all forms of domestic law, except the constitution. According to the agreement, if the government does something that “could hinder or delay any project activity” including “any such action or inaction predicated on security, health, environmental or safety considerations that, directly or indirectly, could interrupt, impede or limit the flow of petroleum,” it could incur stiff penalties.

Only under circumstances where the project poses an “unreasonable threat” to Georgia’s security, cultural heritage, and the environment can the country intervene. What constitutes an “unreasonable threat,” however, is uncomfortably ill-defined, according to Manana Kochladze, Caucasus coordinator for the CEE Bankwatch network, an NGO umbrella group that has been monitoring the project. For this reason, among others, Bankwatch has sought to put pressure on international lenders to examine the project’s environmental and legal ramifications carefully. “The Borjomi issue is also an issue of law,” she says. “That must be remembered.”