A human rights watchdog suspended Azerbaijan’s membership on Thursday, casting doubt on billions of dollars worth of loans being considered for a pipeline linking the country’s gas fields to the EU.
The government of Ilham Aliyev has been repeatedly asked by the Extractive Industries Transparency Initiative (EITI) to lift restrictions on civil society organisations. On Thursday the EITI board, which meets in Oslo, decided that the regime had run out of time.
Azerbaijan is consistently ranked as one of the world’s most corrupt countries. In February, 22 human rights organisations wrote to the EITI board urging the suspension of Azerbaijan, which the letter said had failed to meet the requirements set for opening up the country to non-governmental groups.
The EITI oversees transactions and promotes transparency in commodities industries. Most large oil companies, countries and development banks are members.
Membership provides guidance for development finance for the extractives industry. The World Bank uses EITI standards and provides recipients with funding to help implement them.
The World Bank and Asian Infrastructure Investment Bank have together pledged US$1.2 billion in support of the Southern Gas Corridor (SGC), which will link Azerbaijan with southern Italy.
The World Bank’s loan is divided into $400m for the Turkish section of the pipeline (known as the Trans-Anatolian Natural Gas Pipeline Project, or Tanap) and $400m will go directly to the Azeri government.
Other banks, including the European Bank for Reconstruction and Development (ERBD), are considering further large-scale financing. In total, the loans mooted amount to a reported $5.5bn.
It is unclear what the suspension will mean for this finance. The World Bank, ERBD and European Investment Bank, another potential loanee, were all contacted for comment but did not respond before publication.
When he was a managing director at the ERBD in 2016, Riccardo Puliti told Anadolou Agency that progress on implementing EITI standards was a condition of large financing.
“It is important for both Tap and Tanap, but it is particularly important for Tanap, because [Azerbaijani state owned energy company] SOCAR is so prominent in Tanap,” Puliti said.
Azerbaijan joins Yemen, the Democratic Republic of Congo, Tajikistan and Kyrgyzstan on a list of countries suspended from the EITI for consistent breaches of its guidelines.
The Southern Gas Corridor pipeline is estimated to cost $45bn. The EU supports the project, despite concerns raised by human rights groups over the implicit and financial support it will give to the Aliyev government.
Anna Roggenbuck, a policy officer at CEE Bankwatch Network, called on the EIB and EBRD to disengage from the project.
“Azerbaijani fossil fuels export projects like the SGC only fuel the autocratic regime in Baku as it intensifies its repression of civil society and media in the country,” she said.
Xavier Sol, director of campaign group Counter Balance, said: “EU leaders, who have long cited democracy and human rights as the cornerstones of modern day Europe, should recognise the EITI board’s decision for the stark warning sign it is. Knowing that any revenues from the Southern Gas Corridor project will only serve to entrench Azerbaijani president Ilham Aliyev’s regime, now is the time for Europe to think whether it is willing to put its highest energy bets on such partner.”
What is the Southern Gas Corridor?
BP calls it “arguably the global oil and gas industry’s most significant and ambitious undertaking yet”. It is a three part pipeline that, if completed, will carry gas from the Shah Deniz 2 oil field in Azerbaijan’s Caspian Sea through Georgia, Turkey, Greece, Albania into southern Italy.
The pipeline is supposed to reduce the EU’s dependence on Russian gas. Campaigners argue that it is likely to become a stranded asset as gas demand in Europe is predicted to remain stagnant. Many have raised concerns about deepening Europe’s financial and political cooperation with the autocratic Aliyev regime.
Total cost: Estimated at US$45bn
Timeframe: Construction is underway, due to be completed by 2020
- South Caucasus Pipeline (SCP) – Azerbaijan, Georgia
- Trans Anatolian Pipeline (Tanap) – Turkey
- Trans Adriatic Pipeline (Tap) – Greece, Albania, Italy1
Ownership: At least 11 different companies are involved in the corporate ownership structures of the various sections. Major players include BP, Azerbaijan’s state oil company SOCAR, Turkish Petroleum, Petronas, Lukoil, Total and Snam.
Public finances: The European Bank for Reconstruction and Development, European Investment Bank and Asian Development Bank and are all considering publicly-backed loans for the development in excess of $500m each. The World Bank has approved an $800m loan.