Shah Deniz Gas Field Expansion Phase 2
Country: Azerbaijan
Project type: Gas field exploration and pipelines
The Southern Gas Corridor (SGC) is a chain of projects proposed to improve the EU’s energy security by diversifying the natural gas supply to Europe. This is one of the most complex gas exploration and pipelines systems, stretching over 3,500 km and crossing seven countries. It is comprised of several separate projects with total required investments estimated up to £45 billion. ADB, AIIB, World Bank, EBRD, and EIB support the Southern Gas Corridor. Despite these projects being promoted as separate, the Southern Gas Corridor developments are closely integrated and have numerous human rights violations.
Project Shah Deniz Gas Field Expansion Phase 2
Description: Shah Deniz gas field is the largest natural gas field in Azerbaijan. It is located in the South Caspian Sea, off the coast of Azerbaijan. The first exploration, operated by British Petroleum (BP), started in 1999. The gas field’s partners are as follows: BP (28.8%); State Oil Company of Azerbaijan Republic (SOCAR)(16.7%); TPAO (19%); Petronas (15.5%); Lukoil (10%); NIOC (National Iranian Oil Company) (10%).
The offshore field is estimated to contain up to 1.2 trillion cubic meters (tcm) of gas and 240 million tons of condensates in recoverable reserves. The project’s total cost is $4.5 billion.
The field has been supplying Turkey since 2007 via the newly built South Caucasus pipeline. In 2013, there was an agreement to develop the second stage of the Shah Deniz Field to extract gas and to supply the EU countries. The project will increase annual gas production capacity from 9.8 billion cubic meters (bcm) from 2015 to 26 bcm by 2022. The stage two development of the offshore gas field comprises 26 subsea wells and two offshore platforms, including a production and risers platform and a quarters and utilities platform. It also included the expansion of a gas plant at the Sangachal Terminal and the South Caucasus Gas Pipeline expansion in Azerbaijan and Georgia.
Total Project costs: $4.5 billion
IFIs involvement: ADB: $1.475 million; EBRD: $500 million
Ongoing and Potential conflict:
The project represents a significant contribution to climate change through the expansion of gas consumption. The already existing oil and gas exploration in the Azerbaijan Caspian Sea shore already brought irreversible changes to biodiversity, including sturgeon. The villages around the Sangachal terminal have voiced concerns about the increased diseases and the rate of stillbirths due to air pollution, including gas flares on the oil terminal. During the project implementation, there were no adequate consultations during the national decision-making process and the public consultation process under the ADB and EBRD-funded projects.
An explosion occurred at a gas pipeline in the Sangachal oil and gas terminal on December 27, 2016. It happened in the gas pipeline’s compressor station with a barometric pressure of 125, which belongs to the Gas Export Department of Azerigas in the Yenikand area of Sangachal settlement. The fire spread widely to residential houses.
There were also numerous cases of inadequate compensation of the utilized land during the pipeline construction. The residents of the Garajemirli village of the Shamkir region had problems receiving adequate compensation for their lands where the Southern Gas Corridor pipelines passed through.
Complaints:
In 2017, Crude Accountability [1] submitted a complaint to EBRD Project Complaint Mechanism (PCM) regarding the Lukoil Shah Deniz project, stating:
Lack of adequate consultation with local communities, lack of access to information and redress for local communities, lack of compensation for residents’ property damage arising from project-related accidents ( gas pipeline explosion), lack of necessary soil, air, and water quality monitoring, inability to grow fruits and vegetables in the impacted villages due to contamination of the soil.
In its conclusion, PCM found that the bank had not complied with its 2008 Environmental and Social Policy. Through the obtaining of the derogation for the disclosure of the Project Environmental and Social Management Plans, it found that the bank, under Performance Requirement Standard 10 “On Information Disclosure and Stakeholder Engagement,” failed to ensure the disclosure and accessibility of the relevant (non-technical) documentation as well as the Project Environmental and Social Management Plans (ESMP) for local people. It could not ensure meaningful participation of all community members impacted by the project and could not ensure the effectiveness of the project grievance mechanism.
Considering the human rights situation within Azerbaijan and existing concerns regarding the right to speech, the bank’s role in ensuring meaningful engagement with affected communities was crucial. It is worrisome that under these particular circumstances, “The ESIA does not mention any plans or efforts to mitigate project-induced vulnerability on identified stakeholder groups” and that “Impacts on vulnerable groups have not been systematically monitored.”
Compliant of local residents to IFC/MIGA CAO
On October 26, 2018, CAO received a complaint from 10 residents from the Garajemirli Village, Shamkir Region, Azerbaijan. The complaint raised issues of land compensation and consultation during the construction of the South Caucasus Pipeline Expansion (SCPX) passing through the plaintiffs’ lands. According to MIGA, the SCPX is an associated facility of the TANAP Project.[2]
CAO found the complaint eligible for further assessment on November 19, 2018, and began an assessment of the complaint. During the assessment, there was a lack of consensus amongst the parties to engage in a CAO dispute resolution process. Given that CAO dispute resolution is voluntary, the complaint has been referred to CAO’s Compliance function for appraisal in accordance with CAO’s Operational Guidelines.
CAO completed a compliance appraisal of the complaint in March 2020.
The complaint raises concerns regarding economic displacement and before information disclosure, community engagement, and consultation concerning livelihood restoration and compensation. While evidence beyond the complainants’ account of events is limited, these issues are potentially substantial in nature in that they may have a material livelihood impact on a significant number of households.
SCPX is acknowledged by MIGA to be an associated facility of TANAP. However, MIGA determined that its E&S requirements would not be extended to cover SCPX. This decision was based on the conclusion that SCPX would be operated by third parties over which TANAP has no operational control or leverage. Considering the ownership structures of SCPX and TANAP, CAO has questions as to the robustness of the analysis that led MIGA to this conclusion.
MIGA did not engage with public reporting of the issues related to the complaint (community grievances over compensation for land used by SCPX) either in 2015 during MIGA’s due diligence, or in 2018 during MIGA project monitoring. Underlying this lack of response was MIGA’s conclusion that TANAP had no operational control or influence over SCPX.
Nevertheless, CAO has determined that a compliance investigation is not the appropriate response to this complaint. In reaching this conclusion, CAO has considered the following: (a) that the resettlement process that gave rise to this complaint occurred prior to MIGA providing a guarantee for the TANAP project in June 2018; (b) that the MIGA guarantee was canceled in August 2019; and (c) that IBRD requested and received from its Board of Executive Directors a safeguarding policy waiver for TANAP “associated projects,” including SCPX.