International Finance Corp., the private sector arm of the World Bank Group, has approved modest but influential loans for two multibillion-dollar projects expected to boost the Caspian Sea region's profile as a western export supplier.
Investments will be made in both the $3.2 billion Azeri-Chirag-Deepwater Gunashli (ACG) Phase 1 oil field and the Baku-Tbilisi-Ceyhan (BTC) pipeline. Both of IFC's contributions are relatively small given the scope of the projects, but the board's action is seen as a vote of confidence that the region's leaders and private investors will adhere to IFC guidelines on environmental stewardship and fair accounting practices.
"These are sound projects that have achieved a lot of transparency. For example, the projects' host government agreements, intergovernmental agreement, and production-sharing agreement were made public, which is a first in a project of this nature. And Azerbaijan's oil revenues will be made transparent, partly due to the World Bank Group's assistance in establishing the State Oil Fund of Azerbaijan," said Rashad Kaldany, director of the World Bank Group's oil, gas, mining, and chemicals department.
IFC played an even larger role in the construction of the recent $3.7 billion Chad-Cameroon pipeline. In that project, the Chad government essentially ceded much of its control over oil revenues to secure the private and public financial support needed to make the deal.
IFC officials noted that the key difference between the two projects is that there is much more definition on the use of revenues in the Chad situation, "whereas in Azerbaijan we have put more emphasis on transparency and disclosure by the consortium." In other words, companies will make public how much they pay into government coffers, and the government will have its state oil fund's accounts audited on an annual basis, and this will be disclosed.
"The objective at the end of the day is to have proper government capacity built up and local participation so that there is more ownership of the issues locally," IFC said.
IFC commitment
IFC's investment in ACG Phase 1 consists of loans of as much as $30 million for its own account and further loans of as much as $30 million to be commercially syndicated.
The BTC pipeline is a 1,040 mile dedicated crude oil pipeline system with a capacity of 1 million b/d. The pipeline will extend from the ACG field through Azerbaijan and Georgia to a terminal at Ceyhan on the Mediterranean coast of Turkey.
IFC's investment in the BTC pipeline consists of a loan as much as $125 million for its own account and a loan of as much as $125 million in commercial syndication. IFC said Azerbaijan is expected to generate $29 billion in oil revenue over the next 20 years, when the full phases of the ACG fields are developed. From the two proposed projects, pipeline transit revenues to Georgia are expected to be about $500 million. Turkey is expected to earn $1.5 billion from pipeline and terminal operations, transit fees, and upstream investments.
