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Relics of Soviet oil exploitation litter the view on the road going south from the coastal capital Baku. Nodding donkeys and derricks lie frozen with rust, encircled by stagnant pools of oil sludge and seawater. Corroded pipelines criss-cross the flat, arid landscape. Just out to sea stand ghostly oil platforms
From 2005, new platforms in the Caspian will pump the Devil’s tears through the world’s biggest oil and gas terminal at Sangachal and into a 1000- mile underground pipeline running west through Georgia to the Turkish port of Ceyhan on the Mediterranean.
The Baku-Tblisi-Ceyhan (BTC) pipeline will cross nature reserves, archaeological sites and 1500 watercourses, from small streams in the Caucasus Mountains to rivers and canals. Its route cuts almost entirely through an active earthquake zone. Long-standing regional conflicts with Armenian and Kurdish separatists add to the instability of the project.
It is being built by a BP-led consortium under the intense scrutiny of international campaigners demanding that the oil giant lives up to ethical commitments made after major environmental and human rights scandals in Alaska and Colombia, where it operates two other major pipelines.
Neither has the geopolitical significance of the BTC pipeline – the first east-west energy corridor intended to reduce Anglo-American reliance on OPEC and Middle Eastern oil – been overlooked. In Whitehall, the pipeline is considered vital to Britain’s energy security as North Sea oil reserves dwindle.
It is also key to what analysts call the ‘New Great Game’, a geopolitical struggle between Presidents Bush and Putin for control of the 15 new republics that emerged from the former Soviet Union in 1991. Washington sees Azerbaijan and Georgia as bulwarks against Russia and Iran.
There was intense political pressure from the US for BP to build this pipeline. To be compensated for the risk to its well-crafted reputation, BP chief executive Lord Browne told the Financial Times in 1998 there would be no BTC without “free public money”.
Total construction costs will top $3.6 billion dollars. Seventy per cent of this is being borrowed from a ‘Lenders Group’ of international financial institutions and commercial banks, such as the Royal Bank of Scotland.
Yet none of the banks would have risked their cash without the backing of the World Bank, the European Bank for Reconstruction and Development (EBRD), political risk insurers and government export credit agencies such as the UK’s Export Credit and Guarantee Department (ECGD).
The EGCD’s support came last December, when Trade Minister Mike O’Brien pledged roughly £58m (fifty-eight million pounds) of taxpayer’s money to underwrite British businesses working on the BTC project.
This, he assured Parliament, was based on “a rigorous assessment of the risks associated with the project and a thorough review of the environmental, social and human rights impacts.”
On February 3, BP signed the $2.6 billion loan agreement with the Lenders Group at an ostentatious ceremony in Baku.
However, the Commons trade and industry select committee is now investigating whether BP hoodwinked the ECGD by suppressing internal warnings of a major design fault to secure the loan. Committee members will also examine whether O’Brien misled Parliament when he claimed the pipeline, and therefore taxpayers’ money, was safe.
One year before construction started last July, two senior BP managers on the BTC project were so alarmed at design proposals from London that they asked Derek Mortimore, a highly respected British pipeline integrity consultant, to investigate.
Of particular concern was the choice of anti-corrosion coating for the 150,000 welds on the pipeline, one of the most important technical decisions on the project.
Mortimore’s internal BP reports in August and November 2002, seen by Red Pepper, were unequivocal. He warned that BP’s choice of a Canadian paint was “utterly inappropriate to protect the pipeline for its estimated design life” of 40 years.
BP, he said, would be burying an “environmental time bomb” because in the cold months the coating would crack leaving the steel pipeline exposed to corrosion and therefore ruptures as one million barrels of high-pressured, hot crude was coursing through it daily.
Mortimore also warned that the performance test to choose the best coating was “seriously flawed”. E. Wood, a British company that lost the estimated £5 million contract to the Canadian firm went further and wrote to BP alleging its procurement staff had rigged the test. The oil company responded by carrying out an internal inquiry that exonerated it.
BP then dispensed with Mortimore’s services in January 2003. But eleven months later, with the $2.6 billion loan agreement just weeks from being signed, the field joint coating cracked, as Mortimore predicted.
Work was secretly stalled over the Christmas period as BP panicked. An estimated 15,000 field joints were already buried and could no longer be regarded as safe.
Corrosion experts familiar with the problem say the only acceptable thing to do is to dig it up and recoat using a different material with proven adhesion to plastic-coated steel pipelines.
The remedial costs would run into hundreds of millions of pounds and delay the project considerably, with knock on compensation payments for the host governments in lost oil revenue.
During a series of secret and tense meetings in Baku and London, contractors told BP the coating failure was down to them because the oil company had nominated the Canadian paint as the only material to be used on the field joints.
BP kept all this from the ECGD and the wider Lenders Group. But when we exposed it in the Sunday Times on February 15, Mike O’Brien and ECGD officials declined to set up an inquiry or even send his officials to a briefing by Mortimore and other corrosion experts.
The minister’s letter to campaigners was grist to the mill of those who refer to BP as Blair Petroleum. Fantastically, O’Brien said the technical problems were “routine” and therefore BP had no obligation to report them under the terms of the loan agreement.
O’Brien also protected his officials at ECGD by claiming an independent engineering company, Parsons, operating on behalf of the Lenders Group had “scrutinised and approved” the choice of coating.
Yet Parsons has confirmed to Red Pepper this was not the case. Their reviewer was not a corrosion expert; he did no quality assurance exercise; there was no testing of the Canadian paint; nor did BP disclose to Parsons any background material or the Mortimore reports.
Parsons also confirm BP is a client and the so-called “independent” review was paid for by the BTC consortium.
The Commons select committee has now received full details and will cross-examine ECGD officials and Mike O’Brien in early May.
The minister’s position, that companies do not need to report allegations of fraud or bribery if their own internal investigations find no evidence of wrongdoing, makes a mockery of the prime minister’s own commitment in September 2002 to tackling corruption in the extractive industries.
The Labour-dominated committee could recommend a full independent audit of the field joint system and refer the procurement fraud allegations to the Serious Fraud Office. This would bring it into a collision course with Tony Blair, who is very supportive of BP’s Caspian adventures and enobled John Browne as a People’s Peer in 2001.
Sources on the BTC project deny BP’s claims that it has cured the cracking problem. Corrosion experts consulted by Red Pepper confirm Mortimore’s conclusion that the cracking is an indication of a serious problem with the paint’s chemistry and symptomatic of its inappropriateness for a plastic coated pipeline it can never protect.
E.Wood managing director, Chris McDonnell, who has also written to the committee, said: “Our view is that individuals within BP were trying to cover up a decision which was clearly flawed and which we believe was influenced by an individual who was closely associated with our main competitor.”
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