GEORGIA: DOES THE BTC PIPELINE PROMOTE HOPED-FOR LOCAL ECONOMIC GROWTH?
4/18/07
A EurasiaNet
by Molly Corso
Georgian government officials have always maintained that the Baku-Tbilisi-Ceyhan pipeline is a vehicle for promoting both economic prosperity and energy security. However, nearly two years after the oil began to flow, some economists and NGO activists are questioning how much the BTC project has really done to stimulate economic growth in the South Caucasus country.
Georgian President Mikheil Saakashvili has repeatedly portrayed the pipeline as a catalyst for prosperity. In a late 2003 speech, for example, Saakashvili played up BTC’s power to improve the everyday lives. "Projects of this kind will serve the interests of each Georgian citizen and not the particular clans, as it was before," Saakashvili told business executives at that time.
Now that BTC has a track record, economists and Georgian NGO activists have looked at the results and some say that few benefits have trickled down to the population. According to Michael Schmidt, an economic expert for the Georgian-European Policy and Legal Advice Center (GEPLAC), although the BTC project injected huge sums into the Georgian budget, the actual long-term impact could be negligible. "BTC is not ‘sustainable’ in the sense that it created a small construction boom," he said in an email interview with EurasiaNet. "With BTC in operation, the ’backward-linkages’ to the local economy are limited."
There is no question that the BTC pipeline had a major impact on Georgia’s budget in recent years. According to a January 2007 report prepared by GEPLAC, BTC-related outlays made up close to 70 percent of the total foreign direct investment in Georgia from 2000-2006. The pipeline was built and currently operates by a consortium led by British Petroleum. [For background see the Eurasia Insight archive].
Even though construction and compensation payments are now a thing of the past, BTC continues to contribute a sizable sum in a variety of forms -- additional investment, operational spending, grants and social programs. According to a draft copy of BP’s 2006 annual report, BTC contributed $7.8 million in profit tax in 2006. The estimated tax contribution in 2007 is $25 million.
Tbilisi has long promoted the pipeline as the magnet for investment in other areas. In a 2004 television interview, Saakashvili stressed that BTC "is helping" attract other foreign companies and investments. But Gia Jandieri, a Georgian economist, says it is open to interpretation how much credit the pipeline deserves for attracting outside investment. In 2006, foreign investment in the country more than doubled, with purportedly 60 percent of the total going into BTC-related ventures. "I don’t think there is a direct link," Jandieri said. "[Y]ou cannot paint it directly as a magnet for other projects. … But I suppose it gave some push to other companies to start [to invest in Georgia]."
BP executives try to downplay the notion that BTC is supposed to act as an investment magnet. According to David Glendinning, the communications and external affairs manager at the BP Georgia office, the company has "shared its story" at investment forums, but it is more interested in promoting "good business practices" locally.
According to Schmidt, while the pipeline will provide a few Georgians with steady income, it is not an enterprise that creates massive employment. That, in turn, means that the indirect impact on the economy -- and the direct impact on average Georgians -- depends on how Tbilisi spends the money that BTC is generating for the state budget.
BP estimates that at the peak of construction, over 4,000 Georgians were employed in some facet of pipeline work. However, communities along the BTC route -- and NGOs monitoring the project -- argue that too few locals were hired to make a real impact on the local economy. "Our young people did not work. They brought workers from other places but did not hire local workers," Marietta Valnia, a middle-aged villager in Tetriskaro, which is along the BTC pipeline corridor. She added that those who were able to find jobs were able to save some money.
Glendinning pointed out that BP and other consortium members maintain several social projects and grant programs that are available to residents along the pipeline. One such program, the Community Investment Program (CIP), started in 2003 with an initial budget of $8 million for the 77 villagers along the Georgian route. According to BP’s 2005 annual report, at the end of 2005 over 14,000 micro loans had been distributed through the program with a total value of $4 million. However villagers interviewed by a EurasiaNet correspondent claimed that they had never received any information about the micro-credit program.
Manana Kochladze, founder of the environmental NGO Green Alternative, suggested that the Georgian government bears a significant share of responsibility for existing discontent among Georgians. Monitoring groups have found that a significant share of the money generated by BTC -- in the form of taxes, grants and other social outlays -- is not making it back to the communities. This means that transparency remains an issue. Another problem appears to be rooted in a communications breakdown.
An example of miscommunication is connected with a $1-million credit that BP offered the government to help relocate the village of Dgvali, which is located along an active landslide area. The government declined to avail itself of the $1 million for the relocation project, and it was ultimately reallocated to a program that had no impact on Dgvali. Villagers, however, still believe they are entitled to the funds, and have refused to leave the area despite the fact that some buildings have already been destroyed by landslides.
One of the most ambitious programs that BP has created for Georgia is a 40-year grant program, under which BP agreed to give the Georgian government money, including $40 million to be allocated over a five-year period starting in 2005, to stimulate growth, including an employment programs in the Borjomi region. According to a 2006 report from the Georgian Young Lawyers Association, it is impossible to ascertain how those earmarked funds are being spent on the desired programs since the money is injected into the country’s general budget, and the government is not required to list which programs received what funds.
In theory, the largest source of income for the villagers located along the pipeline was the land compensation paid for use of their property. Yet several NGOs, including Green Alternative, argue that the payments were too small and the process too confusing.
According to Glendinning, BP paid more than $22 million in land compensation countrywide -- more than twice what was originally budgeted for land acquisition. However, Kochladze noted that the framework to make payments was severely flawed. As a result, Kochladze continued, many of those who received funds have not been successful at turning their compensation into sustainable businesses.
Glendinning admitted that the program experienced some initial hiccups. But he stressed that out of 4,000 grievances filed during the construction phase, only half concerned land compensation and BP was able to resolve 60 percent of those. He added that BP produced and distributed a booklet -- in the Georgian and Russian languages -- to all affected communities that outlined the company’s compensation program. No one in the three affected villages that a EurasiaNet correspondent visited along the pipeline route -- Krtsanisi, Tetriskaro, and Dgvali -- recalled receiving the booklet, or any other printed information about compensation. BP contracted out the job of information dissemination concerning the land compensation program and, according to Glendinning, in 2003-2004, the company took over some of the contractor’s responsibilities because BP officials were unhappy with the performance.
"We did not know how much they should pay us; we took what they gave and were quiet," said Darcho Poghosian, a villager in Tetriskaro. "Like you throw a dog a piece of bread so it will stop barking, that is how they treated us: they gave us a little so we will be quiet."
Editor’s Note: Molly Corso is a freelance reporter and photojournalist based in Tbilisi.
Note: Above are excerpts from the article. The full article appears here. Clarifications and comments by me are contained in {}. Deletions are marked by [...]. The bold emphasis is mine.
A EurasiaNet
by Molly Corso
Georgian government officials have always maintained that the Baku-Tbilisi-Ceyhan pipeline is a vehicle for promoting both economic prosperity and energy security. However, nearly two years after the oil began to flow, some economists and NGO activists are questioning how much the BTC project has really done to stimulate economic growth in the South Caucasus country.
Georgian President Mikheil Saakashvili has repeatedly portrayed the pipeline as a catalyst for prosperity. In a late 2003 speech, for example, Saakashvili played up BTC’s power to improve the everyday lives. "Projects of this kind will serve the interests of each Georgian citizen and not the particular clans, as it was before," Saakashvili told business executives at that time.
Now that BTC has a track record, economists and Georgian NGO activists have looked at the results and some say that few benefits have trickled down to the population. According to Michael Schmidt, an economic expert for the Georgian-European Policy and Legal Advice Center (GEPLAC), although the BTC project injected huge sums into the Georgian budget, the actual long-term impact could be negligible. "BTC is not ‘sustainable’ in the sense that it created a small construction boom," he said in an email interview with EurasiaNet. "With BTC in operation, the ’backward-linkages’ to the local economy are limited."
There is no question that the BTC pipeline had a major impact on Georgia’s budget in recent years. According to a January 2007 report prepared by GEPLAC, BTC-related outlays made up close to 70 percent of the total foreign direct investment in Georgia from 2000-2006. The pipeline was built and currently operates by a consortium led by British Petroleum. [For background see the Eurasia Insight archive].
Even though construction and compensation payments are now a thing of the past, BTC continues to contribute a sizable sum in a variety of forms -- additional investment, operational spending, grants and social programs. According to a draft copy of BP’s 2006 annual report, BTC contributed $7.8 million in profit tax in 2006. The estimated tax contribution in 2007 is $25 million.
Tbilisi has long promoted the pipeline as the magnet for investment in other areas. In a 2004 television interview, Saakashvili stressed that BTC "is helping" attract other foreign companies and investments. But Gia Jandieri, a Georgian economist, says it is open to interpretation how much credit the pipeline deserves for attracting outside investment. In 2006, foreign investment in the country more than doubled, with purportedly 60 percent of the total going into BTC-related ventures. "I don’t think there is a direct link," Jandieri said. "[Y]ou cannot paint it directly as a magnet for other projects. … But I suppose it gave some push to other companies to start [to invest in Georgia]."
BP executives try to downplay the notion that BTC is supposed to act as an investment magnet. According to David Glendinning, the communications and external affairs manager at the BP Georgia office, the company has "shared its story" at investment forums, but it is more interested in promoting "good business practices" locally.
According to Schmidt, while the pipeline will provide a few Georgians with steady income, it is not an enterprise that creates massive employment. That, in turn, means that the indirect impact on the economy -- and the direct impact on average Georgians -- depends on how Tbilisi spends the money that BTC is generating for the state budget.
BP estimates that at the peak of construction, over 4,000 Georgians were employed in some facet of pipeline work. However, communities along the BTC route -- and NGOs monitoring the project -- argue that too few locals were hired to make a real impact on the local economy. "Our young people did not work. They brought workers from other places but did not hire local workers," Marietta Valnia, a middle-aged villager in Tetriskaro, which is along the BTC pipeline corridor. She added that those who were able to find jobs were able to save some money.
Glendinning pointed out that BP and other consortium members maintain several social projects and grant programs that are available to residents along the pipeline. One such program, the Community Investment Program (CIP), started in 2003 with an initial budget of $8 million for the 77 villagers along the Georgian route. According to BP’s 2005 annual report, at the end of 2005 over 14,000 micro loans had been distributed through the program with a total value of $4 million. However villagers interviewed by a EurasiaNet correspondent claimed that they had never received any information about the micro-credit program.
Manana Kochladze, founder of the environmental NGO Green Alternative, suggested that the Georgian government bears a significant share of responsibility for existing discontent among Georgians. Monitoring groups have found that a significant share of the money generated by BTC -- in the form of taxes, grants and other social outlays -- is not making it back to the communities. This means that transparency remains an issue. Another problem appears to be rooted in a communications breakdown.
An example of miscommunication is connected with a $1-million credit that BP offered the government to help relocate the village of Dgvali, which is located along an active landslide area. The government declined to avail itself of the $1 million for the relocation project, and it was ultimately reallocated to a program that had no impact on Dgvali. Villagers, however, still believe they are entitled to the funds, and have refused to leave the area despite the fact that some buildings have already been destroyed by landslides.
One of the most ambitious programs that BP has created for Georgia is a 40-year grant program, under which BP agreed to give the Georgian government money, including $40 million to be allocated over a five-year period starting in 2005, to stimulate growth, including an employment programs in the Borjomi region. According to a 2006 report from the Georgian Young Lawyers Association, it is impossible to ascertain how those earmarked funds are being spent on the desired programs since the money is injected into the country’s general budget, and the government is not required to list which programs received what funds.
In theory, the largest source of income for the villagers located along the pipeline was the land compensation paid for use of their property. Yet several NGOs, including Green Alternative, argue that the payments were too small and the process too confusing.
According to Glendinning, BP paid more than $22 million in land compensation countrywide -- more than twice what was originally budgeted for land acquisition. However, Kochladze noted that the framework to make payments was severely flawed. As a result, Kochladze continued, many of those who received funds have not been successful at turning their compensation into sustainable businesses.
Glendinning admitted that the program experienced some initial hiccups. But he stressed that out of 4,000 grievances filed during the construction phase, only half concerned land compensation and BP was able to resolve 60 percent of those. He added that BP produced and distributed a booklet -- in the Georgian and Russian languages -- to all affected communities that outlined the company’s compensation program. No one in the three affected villages that a EurasiaNet correspondent visited along the pipeline route -- Krtsanisi, Tetriskaro, and Dgvali -- recalled receiving the booklet, or any other printed information about compensation. BP contracted out the job of information dissemination concerning the land compensation program and, according to Glendinning, in 2003-2004, the company took over some of the contractor’s responsibilities because BP officials were unhappy with the performance.
"We did not know how much they should pay us; we took what they gave and were quiet," said Darcho Poghosian, a villager in Tetriskaro. "Like you throw a dog a piece of bread so it will stop barking, that is how they treated us: they gave us a little so we will be quiet."
Editor’s Note: Molly Corso is a freelance reporter and photojournalist based in Tbilisi.
Note: Above are excerpts from the article. The full article appears here. Clarifications and comments by me are contained in {}. Deletions are marked by [...]. The bold emphasis is mine.
Labels: Georgia - Economy
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