Why does BTC need the Host Government Agreements (HGAs) and Inter-governmental Agreement (IGA)?
The BTC pipeline is an immensely complicated, multi-country, multi-partner, multi-decade commitment costing more than $3.5 billion. It will be constructed in a part of the world that is going through a rapid political and socio-economic transition. In these circumstances there is a need for a durable framework which provides a transparent and effective legal structure. The HGAs and the IGA are intended to provide this framework. Concession agreements of this nature are standard for infrastructure projects throughout the world and, in addition, the HGAs are the mechanisms through which each government receives its transit fees from BTC.
The HGAs and IGA were negotiated over a long period of time and subsequently debated and ratified by each of the three parliaments. IFC asked BTC to disclose these documents and they can be viewed on their project web site (
www.caspiandevelopmentandexport.com). In a difficult and complex socio-economic environment, the HGAs protect BTC’s (and ultimately other lenders) investment against capricious or arbitrary changes in law, taxation, provision of services and so on which might severely damage the economics of the project or worse discourage further FDI.
The HGA specifies that the Project will not be subject to any new social or environmental standards introduced by the host governments “to the extent they are different from or more stringent that the standards and practices generally prevailing in the international petroleum pipeline industry for comparable projects.” What standards will the BTC consortium be held to and will IFC insist that the standards be specified?
As described above, there is a “floor” for the standards applicable to the BTC pipeline of those generally applied in the member states of the European Union, with, in the case of
Georgia, specific references also to the environmental standards of the Netherlands and Austria. This is a general statement setting out the overall intent of the parties. In addition, there are two separate mechanisms which set out in greater detail the environmental and social standards to which the project will be subject, namely:
(i)Under the HGA, BTC and each host government agree an Environmental Impact Assessment which BTC must then comply with. BTC must also complete and comply with a Social Impact Assessment. These documents are publicly available; and
(ii)Under the financing documentation to be signed with IFC and other lenders, BTC Co. commits to compliance with the environmental and social standards set out in the ESAP (currently being negotiated) as well as specified World Bank/IFC social and environmental policies and guidelines.
A material failure by BTC Co. to comply with either of these documents will constitute a default under the financing documentation.
