Press release from:
Friends of the Earth
Baku-Ceyhan Campaign
Kurdish Human Rights Project
Corner House

Oil Giant BP Accused of Major Corruption and Cover-Up

Human rights and environmental groups [1] today demanded an independent inquiry into BP's embattled Baku-Tbilisi-Ceyhan (BTC) oil pipeline, following allegations in the Sunday Times that the company concealed both potential fraud and likely environmental catastrophe from governments and banks which subsequently decided to fund the project [2].

A BP consultant report in November 2002 warned that the company was "completely out on a limb" over its choice of joint coating for the Azeri and Georgian sectors of the pipeline, which the report noted was likely to result in widespread oil leakage, "astronomical" repair costs and "open-ended" legal liabilities. BP also carried out an internal inquiry into alleged procurement fraud over the coating contract. International funders' backing for the project was only secured in November and December 2003.

Campaigners insist that an immediate investigation must be launched into whether BP disclosed either the risk of leakage or the fraud investigation to potential funders, as it was legally obliged to do. The company's failure to disclose the risks from the faulty coating material, if confirmed, could constitute a default under its loan agreements, potentially requiring major funders including the World Bank to suspend their loans. BP has consistently claimed that the BTC project is being built to "the highest international standards."

The revelations sparked fury amongst campaigners, who claim that both BP and the funding banks have consistently failed to adhere to mandatory international standards over the project. "We have sent a detailed series of questions to all the banks and government agencies which are currently supporting the BTC project, to confirm if they were informed about the problems with coating and procurement before they decided to provide support," said Nick Rau of Friends of the Earth. "If they were not informed, there seems to be a prima facie case for suspension of their loans."

"There is an urgent need to reassure the public about the safety of this project," said Nick Hildyard of the Cornerhouse. "These documents, which have been made available to us, suggest that far from abiding by international standards, BP has allowed huge sections of the BTC pipeline to be built using materials which are likely to lead to environmental disaster. We must have a fully independent inquiry to find out if these allegations are true and whether the BTC project needs to be halted for the safety of local people and the environment."

"These revelations raise a whole string of crucial questions," noted Anders Lustgarten of the Baku-Ceyhan Campaign. "If BP do have to dig the pipeline up and relay it, how will that affect land users? Will they be compensated for BP's incompetence? It could cost £500 million to do the job right-how does that affect the viability of the pipeline?"

"Every time a problem was brought up during the design of BTC, BP's basic response was to say 'Trust us'," said Greg Muttitt of PLATFORM. "After this, the real question is why anyone should trust anything BP says."

For further information please contact:

Anders Lustgarten, Baku-Ceyhan Campaign, 07973164363
Greg Muttitt, PLATFORM, 07970589611
Nick Hildyard, Cornerhouse, 01258 817518
Kerim Yildiz / Rochelle Harris, Kurdish Human Rights Project, 02072872772

EDITORS' NOTES:

[1] The Baku-Ceyhan Campaign, a coalition of NGOs including the Cornerhouse, Friends of the Earth, PLATFORM and the Kurdish Human Rights Project, have been at the forefront of opposition to public funding for the BTC project, releasing a report in October 2003 which detailed 173 violations of mandatory World Bank standards on the Turkish section of the project alone. However, other major non-governmental organisations, notably Amnesty International and World Wildlife Fund, have also published vocal criticism of BTC.

[2] The allegations centre on a November 2002 report by BP consultant Derek Mortimore that the paint coating used to seal the pipeline's joints against leakage was faulty. In his report to the company, Mortimore noted, "Clearly the use of [this paint] is going to lead to a serious problem. The cost for repairs could be astronomical. The potential for claims against [BP] is open-ended."

"I have witnessed many failures in specifications," Mortimore added, "but the situation on the pipeline is unique in my 41 years' experience." His concerns were validated in November 2003, when cracks were found in the coating of sections of pipe yet to be laid. Work was suspended on the project, but not before an estimated 15,000 joints had been buried in Azerbaijan and Georgia, two of the three countries through which the pipeline passes. The Sunday Times estimated that to dig up and recoat the faulty line could cost half a billion pounds. It is not currently known if the same coating was used in Turkey, in which case recoating costs could be vastly higher.

BP was legally obliged to disclose all risks of "material adverse effects" to potential funders of the $3.7 billion BTC project, which included the World Bank, the European Bank for Reconstruction and Development, the export credit agencies of several countries, including the UK's Export Credit Guarantees Department (ECGD) and numerous private banks. The ECGD confirmed to the Sunday Times that it had not been informed of any major problems prior to agreeing to provide $150 million in support. Already British MPs are calling for the ECGD to take action.

Moreover, Mortimore also referred to "a seriously flawed selection programme". This follows allegations in the Sunday Times that Trevor Osbourne, BP's materials consultant, commissioned a little-known coating material from a Canadian company, SPC, of which his own firm, Deepwater Corrosion Services, was the UK representative. Despite this apparent conflict of interest and the allegations from two other competing companies that the assignation of the coating contract was rigged, BP's internal inquiry into the matter cleared both SPC and BP staff. The company refuses to publish that report.

'BP accused of cover up over pipeline deal', Sunday Times, Insight Team, February 15 2004, http://www.timesonline.co.uk/article/0,,2087-1001669,00.html