Caspian Black Gold: New Study Raises Concerns about the Impact of Oil Development in Georgia and Azerbaijan

The new study, “Pocketing Caspian Black Gold: Who are the Real Beneficiaries of Oil Infrastructure Development in Georgia and Azerbaijan?” published by CEE Bankwatch Network and Energy Project, highlights concerns regarding the rapid development of oil fields in the Caspian Sea and its impact on the local public.

The report raises doubts that oil development projects will bring prosperity to ordinary people in Georgia and Azerbaijan, the majority of whom live far below the poverty line. Instead, the real beneficiaries of oil development are more likely to be Transnationals, Multilateral Development Banks (MDBs), Export Credit Agencies (ECAs) and some high-level governmental officials. The report will be used to illustrate CEE Bankwatch Network’s arguments against MDB and ECA support of the Baku-Tbilisi-Ceyhan pipeline.

The Caucasus and Central Asia were a hotbed of corruption and nepotism during the Soviet era  a trend that has continued even as the region has become the energy industry’s most promising frontier. While the presidents of republics are signing new oil deals worth billions of dollars, there is a confident belief, already evidenced by several facts, that this wealth will not be shared. According to an Azerbaijan oil worker, plenty of money is coming into the country. “But we see none of it; none today and none tomorrow.” So far, people’s lives have not been improved by the oil boom. While the benefits for the local population are almost zero, those same natural resources that offer “great economic potential for the region” also have great potential to play a main role in the further destruction of livelihoods and the environment.

The IFIs have worked steadily since 1994 to ensure private investments and political risk mitigation in the oil sector, particularly in South Caucasus. It includes reducing risks through institutional, policy and legal reforms, as well as through “the involvement of public sector agencies, who can give a unique degree of protection to private investors.” This unique degree of protection has already helped repatriation of earnings by foreign petroleum companies to exceed investment in the first half of 2000. However, it has failed to improve the socio-economic conditions in resource-rich countries like Azerbaijan, as well as in transit countries like Georgia through the transparent allocation of oil revenues to high priority expenditures. This is a glaring example of how wealth and aid is not trickling through to the Azerbaijani and Georgian economies.

The problems of pollution, poverty, human rights and corruption clearly indicate the failure of regional governments to protect their citizens. The reluctance of Governments to recognise the social and environmental problems of oil development will only lead to the further destruction of the fragile environment of the Caucasus and facilitate fear and anger within society.

While the MDBs and Donors speak about institution-building and the transparent allocation of revenues, an enormous amount of money is flowing into the region, adding to the sad experience and legacy of oil exploitation during the Soviet era. The non-transparent allocation of revenues leaves not even a hope that needed income for the region’s poor will be generated.

Of course, if the investments dry up, the socio-economic situation and environment in the region may be no better off than before. However, there is no evidence that simply pumping money in and pumping oil out for projects as Baku-Tbilisi-Ceyhan will improve it.