The companies requesting financing for the ACG Phase 1 project include Amerada Hess Corporation, BP plc, Statoil ASA, Turkiye Petrolleri A.O., and Union Oil Company of California.

The companies requesting financing for the BTC project include Amerada Hess Corporation, BP plc, ConocoPhillips, Eni S.P.A., Inpex Corporation, Itochu Corporation, SOCAR, Statoil ASA, TOTAL, Turkiye Petrolleri A.O., and Union Oil Company of California.

See attachment 1

125.0 million (USD)

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	125.0
Equity

* These investment figures are indicative

ACG Phase 1 Project:
The ACG Field Complex is located in the Caspian Sea east of the Sangachal terminal in Azerbaijan. The ACG contract area established under the PSA covers the Azeri, Chirag and deepwater portion of the Gunashli fields. The fields, which together are approximately 50 km long and cover an area of approximately 440 sq km, are approximately 85 km southeast of the Apsheron Peninsula along the Apsheron-Pribalkhan trend, at water depths of 100 m to 400 m.

BTC Project:
The 1,760 km long BTC pipeline originates at Sangachal where crude from the ACG fields is received. From here, the pipeline is routed west, closely following the existing WREP. At the Georgian border with Azerbaijan, the route traverses west and south until it meets the Turkish border. In Turkey, the route runs south to Erzurum, then west to Erzincan and Sivas before turning south to the Ceyhan terminal.

ACG Phase 1 Project:
This is a Category A project according to IFC’s Environmental and Social Review Procedure. Environmental and social issues associated with the project may include, but are not limited to: resettlement of one extended family from its winter grazing area, permanent displacement/relocation of one cafe/garage and some informal fishermen from part of their fishing area; alternative analysis of oil export options; avoidance, mitigation and compensation of impacts to biodiversity; the management of produced water and gas; oil spill prevention and response planning; and worker and public health and safety. To identify and predict impacts relating to these and other issues, four separate Environmental and Social Impact Assessments (ESIAs) were prepared for various activities associated with the ACG project. On the basis of these ESIAs, an Environmental and Social Action Plan (ESAP) has been prepared for the project which details how impacts will be avoided, mitigated or compensated. An ACG Phase 1 Resettlement Action Plan (RAP) and Public Consultation and Disclosure Plan (PCDP) were also prepared and have been disclosed.

The few individuals directly affected by the project are being compensated according to World Bank OD 4.30 standards. In addition, the budgeted amount for community investment is approximately $4.5 million including a Community Investment Program designed to assist communities near the Sangachal Terminal. Cultural heritage surveys were conducted prior to and during construction activities at the Sangachal Terminal site and an accidental discovery plan for archaeological finds has been implemented. In addition to choosing to expand the existing terminal instead of building a new stand alone terminal, biodiversity impact mitigation includes an Environmental Offset Program with an estimated budget of $250,000 and an Environmental Additionality Enhancement Program with an estimated budget of $200,000. Produced gas will be collected by AIOC and delivered to SOCAR, through newly designed and constructed infrastructure, and will serve to facilitate the commercial use of this gas and reduce flaring.

While the project has been designed to avoid oil spill risk through selective design, an Environmental Risk Assessment, and application of the latest technology a Framework Oil Spill Response Plan (OSRP) has been prepared as part of the ESIA. The ACG OSRP will build upon the existing Early Oil project OSRP which has been in place for several years, has been certified by an international expert and conducts routine training and drills. This plan is in accordance with guidelines from the International Petroleum Industry Environmental Conservation Association, generally acknowledged to be the industry standard. It includes an Environmental Sensitivity Index which prioritizes response actions to high risk areas. The detailed ACG-specific oil spill response plan and equipment will be in place, and responders trained, prior to line-fill.

The project has conducted public consultation and has several information centers in the closest settlements where the public can receive project information, register for training or jobs and discuss issues or comments with the Community Liaison Adviser. In addition to IFC’s own monitoring, the project includes a provision for an Independent Environmental and Social Consultant that will act on behalf of IFC and other lenders to regularly review sponsors' implementation of the ESAP. The project also is enacting a Social and Resettlement Action Plan Expert Panel to monitor implementation of social and resettlement related issues.

The project, as designed, is expected to comply with applicable IFC environmental, social and health and safety guidelines and safeguard policies.

BTC Project:
This is a Category A project according to IFC’s Environmental and Social Review Procedure. Environmental and social issues associated with the project may include, but are not limited to: temporary economic disruption (mainly cropping and grazing) and limited permanent use of land (no physical resettlement); compensation measures for displaced fishermen near Ceyhan terminal and other informal users of common property resources; potential impacts on various vulnerable groups (e.g., elderly and ethnic minorities); public consultation and community interaction; alternative analysis of pipeline corridors and pipeline alignment within the preferred corridor; avoidance, mitigation and compensation of impacts to biodiversity; oil spill prevention and response planning; and worker and public health and safety. To identify and predict impacts relating to these and other issues separate Environmental and Social Impact Assessments (ESIAs) were prepared for Azerbaijan and Georgia and an Environmental Impact Assessment (EIA) was prepared for Turkey. On the basis of the ESIAs and EIA, an Environmental and Social Action Plan (ESAP) has been prepared for the project that details how impacts will be avoided, mitigated or compensated.

Alternative corridors have been assessed for the pipeline and alignment of the pipeline within the preferred corridor has been optimized from cost, technical, safety, environment and social perspectives. Detailed and thorough cultural heritage surveys have been conducted along the entire pipeline route, archaeological monitors will witness grading and excavation, and an accidental discovery plan for archaeological finds will be implemented. In addition to aligning the pipeline to follow existing infrastructure and/or traverse degraded or low agricultural potential land as much as possible, biodiversity impact mitigation includes impact minimization during construction, a $2.5 million OP 4.04 Offset Program and an approximately $9.0 million enhancement program called the Project Environmental Investment Program (PEIP). A Project Community Investment Program (PCIP) has been designed and is being implemented for each country with a total budget of $25 million.

Through detailed routing refinements, physical resettlement will be avoided along the entire pipeline route. Over 17,700 parcels of land are affected through land acquisition activities (mainly temporary economic disruption of cropping and grazing activities). Affected households are being compensated according to World Bank OD 4.30 guidelines. Extensive and frequent public consultation has taken place on the subject of likely project impacts. Compensation measures are detailed fully in Public Consultation Disclosure Plans (PCDPs), Guides to Land Acquisition and Compensation (GLACs) and a Resettlement Action Plan (RAP). Where local legislation does not allow full compensation as required by OD 4.30, separate RAP Funds have been established to close the gap and ensure compliance for each of Azerbaijan, Georgia and Turkey. IFC staff have witnessed and validated numerous sponsor-led, community-level consultation activities.

While the project has been designed to avoid oil spill risks through selective routing, an Environmental Risk Assessment, and application of the latest technology, a Framework Oil Spill Response Plan has been prepared as part of each ESIA. Country specific oil spill response plans and equipment will be in place, and responders trained, prior to line-fill. Within 9 months of beginning operations, the Environmental and Social Management System for the entire BTC pipeline will be ISO 14001 certified.

In addition to IFC’s own monitoring, the project includes a provision for an Independent Environmental and Social Consultant who will act on behalf of IFC and other lenders to regularly review sponsor implementation of the ESAP, including contractor compliance. The project also is enacting a Social and Resettlement Action Plan Expert Panel to monitor implementation of social and resettlement related issues.

The project, as designed, is expected to comply with applicable IFC environmental, social and health and safety guidelines and safeguard policies

Location of environmental documents In locally affected community
See attachment 3
.

Development Impact:
In the widest geopolitical context, the projects will provide global markets with a new, important source of crude oil by creating an east-west energy corridor. The BTC pipeline will provide the first direct transportation link between the hydrocarbon-rich, land-locked Caspian Sea and the Mediterranean. It has already strengthened relations between Azerbaijan, Georgia and Turkey through increased cooperation on a variety of issues and through the co-dependence required to realize project benefits. The BTC project also reflects the development of new economic and political links between the three host countries and Western Europe, e.g. Turkey’s significance as the western outlet of the future east-west energy corridor and as a hub for energy distribution through the Mediterranean, to European and other international markets. From an environmental perspective, as mentioned later, avoiding the shipment of large volumes of crude through the Turkish Straits is viewed as a significant advantage of the project.

The projects have also tried to raise the bar in terms of transparency, including public disclosure. Among the significant agreements that have been made accessible are the Production Sharing Agreement (PSA), the three Host Government Agreements (HGAs) and the Intergovernmental Agreement (IGA). With prudent management, hydrocarbon revenues have the potential to improve economic conditions in Azerbaijan, assisting it in the transition from a centralized command economy to a market driven one. It is hoped that this will contribute to political stability and ongoing processes of economic restructuring and reform in the region. The projects’ principal economic benefits for each of the host countries are further discussed in attachment 2.

IFC Role:
- assist in mitigating political risk perceived by international investors in the projects,
- provide long-term financing (both directly and by mobilizing commercial bank funding through its B loans) that is especially needed by the smaller project sponsor companies;
- provide a framework and oversight for the development and operation of the projects in an environmentally and socially sustainable manner;
- help enhance development impacts by IFC’s linkage and community development programs (currently being developed to complement the sponsors’ SME and community development programs);
- assist in the transparent and effective management of the Oil Fund in Azerbaijan in coordination with the World Bank and the IMF; and help increase the transparency of the projects.