Human Rights and Security External Monitoring Assessment of. the AGT Pipeline Projects in Azerbaijan. BTC and SCP Pipeline Projects.

Transcription

1 Human Rights and Security External Monitoring Assessment of the AGT Pipeline Projects in Azerbaijan BTC and SCP Pipeline Projects May 28, 2008 Prepared by: Gare A. Smith Partner Foley Hoag LLP

2 ABBREVIATIONS AND DEFINITIONS AGT Az SPU BTC CEELI CIP CLO COE EPPD EITI ESIA EU FSO Host Government(s) Human Rights and Security External Monitoring Assessment IASC ICRC IGA ILO Monitor Azerbaijan-Georgia-Turkey. The "AGT Projects" are the BTC oil pipeline project and the SCP (including Shah Deniz) gas pipeline projects. Azerbaijan Strategic Performance Unit. Baku-Tbilisi-Ceyhan. The Central European and Eurasian Law Initiative of the American Bar Association. Community Investment Program. Community Liaison Officer. Council of Europe. Export Pipelines Protection Department -- a subset of the SSPS that is responsible for pipeline protection in Azerbaijan. Extractive Industries Transparency Initiative. Environmental and Social Impact Assessment. European Union. Field Security Officer. The three governments with sovereignty over the territory on which the AGT pipelines, pumping stations, and related physical structures are located. Namely, the Republic of Azerbaijan, the Republic of Georgia, and the Republic of Turkey. The immediate report, which evaluates the implementation of human rights commitments under the Voluntary Principles with respect to AGT projects in Azerbaijan. Inter-Agency Security Committee. International Committee of the Red Cross. Inter-Governmental Agreement. International Labor Organization. Any person appointed by AGT to assess Project

3 compliance with human rights commitments under the Project Agreements and the Prevailing Legal Regime. MOU NGO NREP OSCE Prevailing Legal Regime Project Agreements PU RDI SCP Security Risk Management Plan SOCAR SOFAZ SOP SPU SRI SSPS Titan D USAID Voluntary Principles WREP Memorandum of Understanding. Non-Governmental Organization. Northern Route Export Pipeline. Organization on Security and Cooperation in Europe. The legal framework that governs the construction and operation of the BTC pipeline. The central documents underlying the AGT Projects, including the Inter-Governmental Agreement, the Host Government Agreements, the Joint Statement, and all other agreements, contracts, and other documents to which, on the one hand, any of the Host Governments and, on the other hand, AGT or its Business Partners are or subsequently become a party relating to the Project. Performance Unit. Regional Development Initiative. South Caucasus Pipeline. The Security Risk Management Plan for the SCP/BTC Energy Corridor Azerbaijan Section. State Oil Company of the Azerbaijani Republic State Oil Fund of Azerbaijan. Standard Operating Procedure. Strategic Performance Unit. Socially Responsible Investor. Special State Protection Service, a subset of which is responsible for the provision of security for the pipeline in Azerbaijan. Titan D Limited: the private security company employed by the AGT Projects in Azerbaijan. United States Agency for International Development. The Voluntary Principles on Security and Human Rights. Western Route Export Pipeline

4 Table of Contents I. EXECUTIVE SUMMARY...1 Page 1.1 Overview Summary of Compliance Findings and Recommendations High Priority -- Potential Breach of Voluntary Principles Commitments Priority -- Risk of Project Disruption or Reputational/Legal Damage Low Risk of Breach, Disruption, or Reputational/Legal Damage...5 II. INTRODUCTION Background Human Rights and Security External Monitoring Assessment Scope of Monitoring Visit and Assessment...12 III. IV. IMPLEMENTATION OF THE VOLUNTARY PRINCIPLES IN AZERBAIJAN The Challenge of Operationalization Stakeholder Expectations...17 MONITORING: FINDINGS AND RECOMMENDATIONS Risk Assessment Identification of Security Risks Potential for Violence Human Rights Records Rule of Law Conflict Analysis Equipment Transfers Interactions Between AGT and Public Security Security Arrangements Deployment and Conduct Consultation and Advice Responses to Human Rights Abuses Interactions Between AGT and Private Security Observance of Best Practices Prohibition on Human Rights Abusers Inclusion of the Voluntary Principles in Contractual Provisions Monitoring of Compliance Investigation of Alleged Abuses Consultation with Companies, the Host Government, and Civil Society...62 * * * About the Monitor...65

5 I. EXECUTIVE SUMMARY 1.1. Overview This Human Rights and Security External Monitoring Assessment ( the Assessment ) identifies the degree to which the Voluntary Principles on Security and Human Rights ( the Voluntary Principles ) are being effectively operationalized in the Republic of Azerbaijan with respect to the Baku-Tbilisi-Ceyhan ( BTC ) Project and the South Caucasus Pipelines ( SCP ) (collectively, the Azerbaijan-Georgia-Turkey ( AGT ) Projects) as a means of promoting respect for human rights and managing security in a manner that minimizes legal and reputational risks. Commissioned by BP Exploration Caspian Sea Ltd., this is the third such assessment published for the AGT Projects, and the first to be completed following a full year of operations. The Assessment is undertaken pursuant to BTC Co. s commitment to the independent monitoring of its implementation of the Voluntary Principles. Overall, the Assessment finds the AGT Projects in Azerbaijan to be in material compliance with the Voluntary Principles, and setting global industry standards for effective implementation of this initiative. During the past year, the Projects continued to demonstrate good faith and exceptional leadership in meeting commitments and managing risks identified in the Voluntary Principles. There were no allegations that public or private security forces failed to respect the rights of individuals impacted by the pipelines, nor were there attempted security breaches against the Projects. Paradoxically, this success by the AGT Projects, in partnership with Azerbaijan s public and private security forces, came during the course of a year in which the Government s human rights record deteriorated -- underscoring the legal and reputational challenges facing the Projects and the importance of continuing efforts to operationalize the Voluntary Principles. * * * BTC Co. articulated its policies regarding respect for internationally-recognized human rights and the Voluntary Principles at an early stage, incorporated these policies as commitments in the Prevailing Legal Regime governing the BTC Project, 1 and made the commitments public by publishing key documents on the Project website. Since the establishment of the Voluntary Principles, no other company participant has so deeply or transparently embedded its commitments under the Voluntary Principles into the legal regime governing a project. SCP is in the process of completing and publishing a similar agreement. 1 In Azerbaijan, the BTC Project is being implemented concurrently with the SCP Project, and BTC Co. is responsible for Project operations

6 In addition, the Projects worked with the Government of Azerbaijan to ensure that public security forces tasked with protecting the Projects participate in a world-class human rights and security training regime. This regime is designed to ensure that all individuals providing security for the AGT Projects receive practical instruction regarding the provision of security in a manner consistent with respect for the human rights of impacted individuals. The effectiveness of AGT s efforts to operationalize the Voluntary Principles are evaluated on an annual basis by an independent monitor and, in the spirit of transparency, the results of those evaluations are published through assessments such as this. Notably, the incorporation of the Voluntary Principles into the Prevailing Legal Regime, publication of key Project documents, training of public and private security forces protecting the Projects, independent monitoring of compliance, and publication of findings with respect to Voluntary Principles commitments, are all best practices within the extractive industry. Recognizing that implementation of the Voluntary Principles is iterative and evolutionary, and that compliance should be regarded as a process of continuous improvement, AGT took important steps during the course of 2007 to address ongoing challenges related to the nexus of human rights and security and respond to key recommendations in the 2006 Assessment. Chief among these steps was finalization of the Bilateral Security Protocol between AGT and the Government of Azerbaijan. This Protocol reaffirms the parties commitments under the Voluntary Principles, and serves as a template for the practical operationalization of those commitments. It is a critical tool in helping the public security forces and AGT achieve the Voluntary Principles objectives, and is important for the long-term sustainability of the Projects efforts to demonstrate respect for human rights. In addition, during the course of the year a number of steps were taken to improve communications between AGT, security providers, and impacted communities. These included expanding the role of the Inter-Agency Security Committee ( IASC ) and agreeing to establish a hotline through which stakeholder concerns could quickly be expressed and addressed. Outstanding risks related to security and human rights, ranging from a plethora of lawsuits against members of the extractive industry under the Alien Tort Claims Act to political and security issues in Azerbaijan beyond the control of the AGT Projects, make it imperative that AGT maintain its efforts to operationalize the Voluntary Principles. The Projects are in a defining period with respect to Voluntary Principles implementation. Although AGT, and the security forces with which it has worked, deserve stellar marks for early efforts to operationalize the Voluntary Principles, many stakeholders regard the more significant test to be whether these efforts will be sustainable during the long-term course of operations. To this effect, they are watching the Projects closely to ascertain if the initiatives taken thus far -- ranging from human rights training to independent monitoring -- will be continued throughout the life of the Projects. Inasmuch as such sustainability will be dependent on the political will and - 2 -

7 capacity of the Government of Azerbaijan, and the Government s human rights record remains troubling, AGT will need to continue to work closely with the public security forces. In the coming year, successful implementation of the Voluntary Principles will increasingly hinge on the Government s willingness to assume greater responsibility, such as by effectively institutionalizing human rights training, following through with its commitment to legal reform, and implementing the Bilateral Security Protocol. Recognizing the four-decade lifespan of the Projects, and that AGT s leadership in operationalizing the Voluntary Principles will only be sustainable if the processes and procedures developed thus far are institutionalized, this Assessment encourages AGT management to implement the following recommendations as a means of promoting respect for human rights and minimizing legal and reputational risks Summary of Compliance Findings and Recommendations High Priority -- Potential Breach of Voluntary Principles Commitments There were no breaches of Voluntary Principles commitments Priority -- Risk of Project Disruption or Reputational/Legal Damage (a) Implementation of the Bilateral Security Protocol (Overall Issue) The Bilateral Security Protocol is a singularly important initiative by the AGT Projects, and serves as a template for operationalization of the Voluntary Principles. Now that it has been signed by AGT and the Government of Azerbaijan, AGT will want to follow up with the Government to ensure that the various articles in the Protocol, including those calling for the establishment of a credible system to investigate and address allegations of human rights abuse, and ongoing independent monitoring, are effectively implemented and communicated to stakeholders. (b) Rule of Law (See Section 4.1.4); Training and Observance of International Law Enforcement Principles (See Section ) AGT should support initiatives to promote the rule of law in Azerbaijan. This could be done through a number of means. The Regional Development Initiative ( RDI ), for example, seeks to foster sustainable development at the regional and national levels, and one of the program s three central objectives is to promote good governance. AGT could earmark some of the RDI funding designed to achieve this objective toward initiatives to train police, prosecutors, and judges. Specifically, AGT could leverage and expand upon training initiatives regarding respect for human rights and rule of law by the U.S., the U.K., the Organization on Security and Cooperation in Europe ( OSCE ), the International Committee of the Red Cross ( ICRC ) and/or other international organizations. Representatives of each of these entities indicated that they are open to finding opportunities to coordinate with the AGT Projects with respect to these issues and programs. Notably, the OSCE s initiative to set up a pre-trial judicial system in Azerbaijan and provide training programs for pre

8 trial judges would help to ensure the legality of all aspects of a suspect s chain of custody. Likewise, it s initiative to establish a training program for police that includes human rights, conflict resolution, and proportional use of force directly addresses the risk that police might not demonstrate appropriate respect for an individual detained by the EPPD. In addition, the OSCE s initiative to promote the practical application of laws governing the transfer of real property pertains directly to the property rights issues encountered by the AGT Projects; support for this effort could provide benefits both for AGT and individuals in local communities. AGT should also consult with Statoil regarding that company s experience promoting rule of law and judicial reform in Venezuela, and assess whether there are best practices and lessons learned from those initiatives that could be applied in Azerbaijan. (c) Communicating Ethical Conduct and Human Rights Policies to Security Providers (See Section ); Use of Force and Refraining from Violating Human Rights (See Section ) The concepts and practices embedded in the human rights and security training promulgated by Equity International must be effectively institutionalized in the Special State Protection Service ( SSPS )/Export Pipelines Protection Department ( EPPD ) program if new public security forces are to assimilate and act upon this guidance. AGT should work closely with the EPPD to ensure both that its program includes all substantive aspects of the Voluntary Principles and the EPPD trainers have the capacity to effectively transmit this material. Moreover, AGT should provide annual refresher courses for the EPPD trainers to ensure that they are updated regarding evolving international standards and best practices and are adequately communicating these developments. This is particularly important in light of the Government s backsliding during the course of 2007 with regard to respect for human rights. AGT should make clear to the EPPD that the next year or two will be dispositive with respect to whether the EPPD will be able to continue the training program in a manner that assures its sustainability. This will test the Government s commitment and capacity to maintain this excellent program. (d) Communicating Ethical Conduct and Human Rights Policies to Security Providers (See Section ); Training and Observance of International Law Enforcement Principles (See Section ) AGT should promote training for members of the National Police with whom the Projects public and private security providers interact. To this end, AGT could ask the Government of Azerbaijan to consider including trainers from the National Police in the EPPD human rights training. Those police trainers could subsequently cascade information to police trainees, much as is being done within the EPPD. Alternatively, AGT and the Government might encourage the EPPD trainers to provide periodic training directly to the National Police -- particularly police forces with which the EPPD is likely to interface. AGT might provide funding from the RDI segment promoting good - 4 -

9 governance to help launch such an initiative. In addition, AGT might consider also consider supporting the OSCE s police training program. (e) Communicating Ethical Conduct and Human Rights Policies to Security Providers (See Section ) Establishing the IASC was an important step toward increasing effective communication between the EPPD and the National Police. Equity International s work with the EPPD to establish interagency operability procedures regarding a suspect s chain of custody, which can be used at the tactical level when EPPD patrols work with the police, was another key step in bridge building between these organizations. AGT should encourage the Government to take steps to codify such procedures. (f) Meetings Regarding Security and Human Rights (See Section ) As the EPPD assumes responsibility for all human rights training, revenues to the Government increase dramatically, and the operations phase becomes fully established, AGT will want to ensure that it is consistent in communicating to stakeholders the leadership position it has established in implementing the Voluntary Principles. Any perception by stakeholders that AGT is stepping back from its commitments and implementation initiatives at this period could lead to a considerable loss of support from those who currently regard AGT as a model, particularly inasmuch as the Government s human rights record during the past year has increased stakeholder concerns about the sustainability of the Projects human rights leadership. (g) Monitoring of Compliance (See Section 4.3.4) To ensure that the performance of Titan D Limited ( Titan D ), the private security contractor, is in compliance with its commitments and address any shortcomings identified, AGT should monitor, and fully document, Titan D s performance with respect to implementation of the Voluntary Principles on at least an annual basis and assess it against designated expectations and criteria. Written records should be maintained regarding such monitoring and remedial action taken with respect to any concerns identified Low Risk of Breach, Disruption, or Reputational/Legal Damage (a) Consistency Across Project Lines (Overall Issue) Some key human rights components in the BTC regime have yet to be incorporated into the SCP regime, including the Human Rights Undertaking, the Citizen's Guide, and the publication of principal documents on the Internet. The executive leadership of SCP is aware of this discrepancy and has sought to establish consistency among the Projects. To this effect, the SCP Board of Directors approved its own Joint Statement and Human Rights Undertaking. The Human Rights Undertaking is currently designed to enter into force upon approval of the Joint Statement by the Government of Azerbaijan. AGT might suggest that the Board amend this requirement so that the Human Rights Undertaking can take immediate effect

10 (b) Consultation with Host Governments and Local Communities (See Section ); Consultation with Companies, the Host Government, and Civil Society (See Section 4.3.6) Currently, only senior representatives of the EPPD participate in IASC meetings with local communities. It would be valuable if representatives of the EPPD security forces that patrol the area in which the meeting takes place could also attend -- even if only on a rotating basis. Their participation would enhance the relationship building between the EEPD and the local communities by demonstrating commitment to the consultation process at the ground level, and would help to establish a relationship between the security forces and the community members with whom they will interact. (Having these forces watch their superiors interact with the community in a respectful manner would also reinforce the importance of their demonstrating respect for local villagers while on patrol.) Likewise, AGT should consider regularizing the inclusion of local Titan D guards in future IASC Working Group meetings. (c) Consultation with Host Governments and Local Communities (See Section ); Communicating Ethical Conduct and Human Rights Policies to Security Providers (See Section ) To promote effective communications between the EPPD security forces patrolling the pipelines and local villagers, AGT should ensure that training is provided to new security forces regarding how to interact with community members. Equity International provided a number of training sessions on approach and communications for EPPD officers that focused on effective communication and interpersonal skills with members of the public. The EPPD subsequently integrated that instruction into its training syllabus, but stakeholder feedback suggests that it may not have been cascaded to more junior levels. AGT should urge the EPPD to ensure that this remains a fundamental aspect of the training program. Such training should include how firearms should be displayed in the presence of villagers. (d) Consultation with Host Governments and Local Communities (See Section ) The decision to establish a hotline by which villagers can share concerns about human rights, security, and other aspects of the Projects is laudable. AGT should follow through with this initiative to ensure that it is structurally functioning and that local villagers are made aware of its existence and how it can be used. In addition, AGT should seek to ensure that reports can be made anonymously and without concern of retribution. Such education can be conducted through IASC Working Group meetings, and in the course of interactions with the Field Security Officer ( FSO ) and Community Liaison Officers ( CLOs ). In the spirit of transparency, and where doing so does not present a security risk to people or infrastructure, AGT and the EPPD should seek to share with impacted communities the concerns and complaints received and their resolution

11 (e) Consultation with Host Governments and Local Communities (See Section ) The land use and restrictions brochure provided to land users and owners along the corridor contains a valuable section regarding Project security providers. To help ensure that the Projects human rights commitments and the role of the security forces in protecting the Projects reach the attention of affected villagers who do not own land abutting the pipelines, AGT could create and disseminate a short document that identifies these commitments and the responsibilities of the security forces. As a model for this, AGT might review the brochure that was completed by BP for the Tangguh LNG Project, in Indonesia. Titled Tangguh and Human Rights: Reinforcing Our Commitment, it effectively outlines the company s key human rights and security policies vis-à-vis impacted communities. (f) Consultation with Host Governments and Local Communities (See Section ) Although there are only 27 outstanding land grievances with the local population, many stakeholders, including some local non-governmental organizations ( NGOs ), are under the impression that that number is far larger. This misimpression carries with it some negative reputational consequences for the Projects. To address these reputational challenges, AGT might seek to increase efforts to publicize the number of outstanding cases and their resolution. (g) Consultation with Host Governments and Local Communities (See Section ); Meetings Regarding Security and Human Rights (See Section ) AGT representatives could make greater use of the media to publicize messages regarding the Projects. To this effect, AGT should consider using local newspapers, radio, and television to announce meetings by the IASC Working Group, emergency security developments, and the benefits AGT has provided to local communities. (h) Consultation with Host Governments and Local Communities (See Section ) The community leaders along the pipelines currently lack the ability to communicate through the Internet. The provision of computers to community leaders would facilitate communication among the communities, as well as with AGT, the EPPD, and the police. AGT might consider providing computers to key community leaders to make communication more efficient. (i) Communicating Ethical Conduct and Human Rights Policies to Security Providers (See Section ) The ICRC continues to have an institutional interest in playing a supportive role with respect to human rights and security training. AGT should follow-up with the - 7 -

12 ICRC, and should encourage EPPD trainers who are teaching the course to take advantage of this mutually beneficial offer. (j) Communicating Ethical Conduct and Human Rights Policies to Security Providers (See Section ) As an incentivizing factor, AGT might consider sending key EPPD personnel to other countries to learn best practices with respect to security and human rights. AGT should work with the EPPD to ascertain appropriate programs that may exist for such advanced training and should seek to foster the participation of members of the EPPD most likely to effectively share such practices upon returning to Azerbaijan. Ideally, such locations would be countries that have recently faced and overcome human rights challenges of their own -- such as South Africa, Poland, and the Czech Republic. (k) Communicating Ethical Conduct and Human Rights Policies to Security Providers (See Section ); Private Security: Observance of Best Practices (See Section 4.3.1) AGT might consider, through BP, inviting a senior SSPS/EPPD official to a plenary meeting, or a regional meeting, of Voluntary Principles participants to showcase the Government of Azerbaijan s initiatives to operationalize the Voluntary Principles. Consideration might also be given to inviting a representative of Titan D to a plenary meeting. (l) Transparency and Accessibility of Security Arrangements (See Section ) AGT should encourage the Government to follow-through with its commitment to promote greater fiscal transparency pursuant to the Extractive Industries Transparency Initiative ( EITI ) and its new Revenue Management Policy -- both on its own and in conjunction with other members of the international donor community. To this end, AGT should consider directing some of the RDI funds designed to promote good governance to helping the Government develop the capacity to transparently budget and spend public monies; select, implement, and fund public projects; monitor the use of funds; and evaluate performance. (m) Transparency and Accessibility of Security Arrangements (See Section ) In the spirit of transparency, AGT has since 2005 published the independent monitoring assessments completed for the Projects with respect to the Voluntary Principles. The BTC Project Environmental and Social Annual Report (Operations Phase) 2006, which was released in mid-2007, contains a section on external monitoring, but it does not reference the monitoring conducted with respect to the Voluntary Principles. In the future, both for the sake of consistency and as a means of showcasing AGT s leadership, Voluntary Principles implementation and associated independent monitoring should be included in the Projects Environmental and Social - 8 -

13 Annual Report. AGT should also consider at least referencing it in BTC Co. s quarterly and annual reporting to shareholders. (n) Private Security: Observance of Best Practices (See Section 4.3.1) A representative of AGT should participate in a full session of the training course for private security providers to ensure that it addresses the human rights guidelines articulated in the Voluntary Principles in sufficient depth to satisfy the Projects commitments. In addition, AGT should request Titan D to provide it with a detailed outline of the topics and issues addressed in the training. (o) Private Security: Observance of Best Practices (See Section 4.3.1) In light of the continuous interfacing between the Titan D guards and the EPPD, AGT might consider sending Titan D management to the EPPD human rights course so that they can fully appreciate the distinctions between private and public responsibilities and strengthen their skills in the subject matter that they teach. (p) Private Security: Observance of Best Practices (See Section 4.3.1) AGT personnel provided a special human rights training course for Georgian private security providers. This course was highly regarded by the personnel who participated, and Titan B management is interested in having a similar course provided in Azerbaijan. To ensure that all private security providers on the Projects have the best training possible, AGT should consider offering this course in Azerbaijan

14 II. INTRODUCTION 2.1. Background Large energy infrastructure projects in the developing world, such as the BTC and SCP Projects, 2 inevitably subject investor companies to legal and reputational risks. Human rights-related liabilities, ranging from lawsuits under the Alien Tort Claims Act 3 to campaigns by external stakeholders, are increasingly prevalent and problematic for multinational investors involved in such projects. In today's globalized world, proactive management of the human rights-related risks associated with such business ventures is an important commercial strategy, not a conscience-driven add-on. This is particularly the case with respect to human rights issues related to project security, which have provided the basis for a disproportionately large number of legal actions and reputational challenges to members of the extractive industry. Proactive management of human rights-related risks is widely recognized as a critical factor for effective business security. Seminal initiatives have been established to manage and mitigate human rightsrelated risks presented by the AGT Projects to their investors. Such initiatives include commitments to lenders regarding social and environmental issues, the adoption of provisions referencing international human and labor rights standards in the Host Government Agreements, and explicit commitments regarding the nexus of security and human rights standards, notably the Voluntary Principles, made by and among the parties -- including in the BTC Human Rights Undertaking, the Joint Statement, and the Trilateral Security Protocol. These documents, which together comprise the BTC Project's Prevailing Legal Regime and the circumstances in which this regime may be applied, commit BTC Co. to respecting the highest of internationally recognized human rights standards. 4 The SCP Project is in the process of committing to the human rights standards under similar agreements. 5 2 With a construction cost of approximately $4 billion, the BTC Pipeline is the first direct oil transportation link between the Caspian and Mediterranean seas. It is designed to transport up to one million barrels of Azerbaijani crude per day via Georgia to the Turkish port of Ceyhan. The BTC pipeline became operational in June 2006, following the first tanker loading from the Ceyhan Marine Terminal. The SCP Project runs parallel to the BTC Project in Georgia and is designed to the export gas from the Shah Deniz field to markets in Azerbaijan, Georgia, and Turkey. The SCP pipeline became operational in December The Alien Tort Claims Act is the primary statutory tool for plaintiffs seeking to enforce international human rights law against multinational companies within the U.S. judicial system. The statute states simply the district courts shall have original jurisdiction of any civil action by an alien for a tort only, committed in violation of the law of nations or a treaty of the United States. 28 U.S.C (2007). During the past decade, over 40 Alien Tort Claims Act cases have been brought against more than 100 multinational defendants -- including virtually all the majors in the extractive industry. 4 The Prevailing Legal Regime is founded on an inter-governmental agreement between the Republic of Azerbaijan, the Republic of Georgia, and the Republic of Turkey (the "Inter-Governmental Agreement ("IGA")), and is supported by the Host Government Agreements, the Environmental and Social Impact

15 AGT has also established Bilateral Security Protocols between the Projects and the Host Governments in those countries in which it is the Project operator to facilitate implementation of commitments to security and human rights on a country-by-country basis. A Bilateral Security Protocol between the Georgia and AGT was signed in 2004 and, in November 2007, the AGT Projects and the Government of Azerbaijan signed a similar protocol. Since the establishment of the Prevailing Legal Regime, AGT has participated in information-sharing regarding the Voluntary Principles with the Host Governments, security providers, and other stakeholders, and has sought to align operationalization of the Voluntary Principles regimes in Azerbaijan, Georgia, and Turkey through the exchange of best practices with respect to the delivery of pipeline security. These efforts highlight AGT s commitment to carry out its human rights commitments and have served as a key element of risk management and assurance. To help ensure that these commitments regarding the nexus of human rights and security are effectively operationalized, AGT has requested external monitors who are experts in this field to visit the Projects, meet with key company and government representatives and affected stakeholders, independently assess whether the Projects are in compliance, and offer recommendations. Such assessments were undertaken during the Projects construction. Last year, an assessment was undertaken following completion of the physical infrastructure of the Projects and the commencement of operations. The current assessment is the first to be completed after a full year of operations. The Bilateral Security Protocol specifically provides for such compliance monitoring over the course of the Projects lifetime. 6 If internationally respected standards such as the Voluntary Principles are effectively implemented on an ongoing basis, the initiatives embedded in the Prevailing Legal Regime will promote respect for human rights, help to manage legal human rightsrelated risks to the AGT Projects, and enhance the Projects' reputations -- as well as the reputations of their investors and the Host Governments. Conversely, failure to assure that these obligations are properly discharged on a sustainable basis could exacerbate the very risks that the commitments were designed to mitigate. Assessments ( ESIAs ), the Joint Statement issued by BTC Co. and representatives of the Host Governments, the BTC Human Rights Undertaking, the Trilateral Security Protocol, applicable national and public international law, BP policies, lender institution policies, and additional documents as entered into between BTC Co. and the Host Governments. 5 Although a number of activities for BTC and SCP were joint (such as land acquisition and the ESIAs), some key BTC rights-related components have yet to be incorporated into SCP, including the Human Rights Undertaking, the Citizen's Guide, and the publication of the principal documents on the Internet. The executive leadership of SCP is aware of this discrepancy and has taken steps to harmonize the human rights commitments made by the BTC and SCP Projects. To this effect, the SCP Board of Directors approved its own Joint Statement and Human Rights Undertaking. The Human Rights Undertaking will enter into force upon the signing of the Joint Statement by the Government of Azerbaijan. 6 Protocol between the Government of Azerbaijan and BP Exploration (Caspian Sea) Limited on the Implementation of Security and Human Rights Principles [hereinafter the Bilateral Security Protocol ] (2007), at Article

16 2.2. The Human Rights and Security External Monitoring Assessment This annual Human Rights and Security External Monitoring Assessment of the AGT Projects was commissioned by BP Exploration Caspian Sea Ltd. as a means of monitoring and evaluating implementation of commitments under the BTC Prevailing Legal Regime (and, advisedly, forthcoming SCP Prevailing Legal Regime), with particular respect to implementation of the Voluntary Principles in Azerbaijan. Subsequent, external monitoring and alignment initiatives will be completed in Georgia and Turkey. This is the fourth such Assessment undertaken with respect to the AGT Project. The first round of external monitoring regarding security and human rights in the three countries was undertaken for BP Exploration Caspian Sea Ltd. in 2004, and was conducted for internal assurance purposes only. In the spirit of transparency promulgated by the Voluntary Principles, the Assessments completed in 2005 and 2006, which were conducted as one of AGT s multiple layers of monitoring assurance, were published on the BTC/SCP website, Likewise, AGT has committed to publish this Assessment and subsequent Human Rights and Security External Monitoring Assessments on that website. To facilitate the monitoring and evaluation process, Foley Hoag created an AGT Human Rights and Security Assessment Regime. This Assessment Regime is comprised of three Project Commitments Implementation Checklists as well as verification points for the compilation of findings. These documents are designed to evaluate whether, and the degree to which, the AGT Projects are meeting their commitments and any attendant legal or reputational exposure Project investors may face with respect to security and human rights issues. The AGT Human Rights and Security Assessment Regime was used as the basis for this Monitoring Assessment Scope of Monitoring Visit and Assessment The Monitor's mandate for the Assessment was to provide a "snapshot" of AGT's compliance with the Voluntary Principles in Azerbaijan, with a focus on some of the thematic areas that have been the source of legal and reputational concern in these and other global extractive projects. To fulfill this mandate, Foley Hoag attorney Gare Smith (the "Monitor") conducted research and met with an array of stakeholders in Azerbaijan, the United States, and the United Kingdom. The Monitor also reviewed the Voluntary Principles to distill applicable human rights commitments, and incorporated these commitments into the AGT Human Rights and Security Assessment Regime for use during the Monitoring Visit. In addition, the Monitor studied a wide variety of internal AGT Project documents regarding security and human rights, as well as the best practices employed by other members of the extractive industry in operationalizing the Voluntary Principles. The Monitor also reviewed legal challenges raised under the Alien Tort Claims Act and reputational challenges raised by stakeholders regarding security and human rights issues that could be relevant to risk management for the AGT Projects in Azerbaijan

17 The Monitor visited Azerbaijan from November 4-10, During the visit, he met with and interviewed BTC Co. and SCP personnel, 7 including the companies senior leadership, management with responsibility for security and social issues, representatives of the legal office, the FSO, and CLOs; members of the Azerbaijan Social Review Commission; 8 Azerbaijan government officials, including military leaders with responsibility for the security of the AGT Projects; public and private security providers; representatives of multinational institutions operating in Baku, such as the OSCE and the ICRC; NGOs representing civil society, such as the Open Society Institute and the Civic Response Network; diplomats at the U.S. and British Embassies in Baku with responsibility for human rights, economic, and political affairs, as well as promotion of the Voluntary Principles; and representatives of regions and communities affected by the Projects, including municipal government officials and individuals from local townships. Prior to and following the field visit, the Monitor met with representatives of the National Security Council, at the White House; the U.S. State Department; the U.K. Foreign and Commonwealth Office; international NGOs in Washington, London, and Houston, including Human Rights Watch, Amnesty International, and Business for Social Responsibility; other company participants in the Voluntary Principles; and institutional shareholders to identify security and human rights issues and contextualize the AGT Projects efforts to operationalize the Voluntary Principles. 7 Although neither BTC Co. nor SCP technically have employees, this Assessment uses the terms BTC Co. personnel, SCP personnel, or AGT personnel to describe those persons seconded to BTC Co. and SCP by BP (as manager) and its shareholders, or retained directly by BP, BTC Co., or SCP as contractors. 8 The Azerbaijan Social Review Commission serves as an independent advisory body to the leadership of AGT, focusing on the Projects social performance. It was created in 2007 to help AGT recognize trends, challenges, and longer-term issues facing the Projects

18 III. IMPLEMENTATION OF THE VOLUNTARY PRINCIPLES IN AZERBAIJAN 3.1 The Challenge of Operationalization In an effort to guide members of the extractive industry in maintaining the safety and security of their operations within a framework that ensures respect for human rights, in December 2000, the U.S. and U.K. governments announced the establishment of the Voluntary Principles. BP, as well as BTC Project partners ConocoPhillips and Chevron, 9 was among the seven companies and nine NGOs that participated in the creation of the Voluntary Principles. Subsequently, the governments of Norway and the Netherlands joined the Voluntary Principles, and Statoil -- a partner in both the BTC and SCP Projects became a participant. Hess, also a partner in the BTC Project, later became a participant in the Voluntary Principles. The Voluntary Principles have since gained recognition as the leading international standard articulating the human rights challenges faced by extractive companies in their global security operations and their attendant responsibilities in addressing these challenges. The International Finance Corporation has committed to implement the Voluntary Principles in its projects, and to expand their use beyond the extractive industry. 11 In addition, an External Advisory Panel to the World Bank has recommended that the Bank examine and adopt standards such as the Voluntary Principles. At the Plenary Meeting in January 2006, participants agreed to eliminate the preexisting requirement that nation states needed to be participants before companies incorporated in those states could be affiliated with the Voluntary Principles. As a consequence, it is anticipated that additional members of the extractive sector from a range of other countries will become participants in the coming years. During 2007, at least one such company formally expressed an interest in participating in the Voluntary Principles. 12 The Preamble to the Voluntary Principles acknowledges the preeminence of the Universal Declaration of Human Rights and urges companies to "recognize a commitment to act in a manner consistent with the laws of the countries within which they are present, to be mindful of the highest applicable international standards, and to promote the observance of applicable international law enforcement principles." To this 9 Other partners in the BTC Project include SOCAR, the state-owned oil company of Azerbaijan; Hess; TPAO; Eni; Total; Itochu; and Inpex. 10 Other partners in the SCP Project include SOCAR, LukAgip, NICO, Total, and TPAO. 11 The Voluntary Principles Secretariat is working with the International Finance Corporation to support the development of implementation guidelines. These guidelines are scheduled for publication in That company, Talisman Energy, of Canada, was subsequently invited to participate in the Voluntary Principles

19 end, the Voluntary Principles highlight the importance of the U.N. Code of Conduct for Law Enforcement Officials and the U.N. Basic Principles on the Use of Force and Firearms by Law Enforcement Officials. The Voluntary Principles then address three sets of issues for multinationals: (1) Risk Assessment; (2) Interactions between Companies and Public Security; and (3) Interactions between Companies and Private Security. The Voluntary Principles are the central human rights template guiding security planning for the AGT Projects during the life of the pipelines. AGT uses the Risk Assessment section of the Voluntary Principles as a roadmap to identify key human rights factors to consider when planning security arrangements. These include the identification of security risks; potential for violence; the human rights records of public and private security forces; the strength of the rule of law; conflict analysis; and equipment transfers. These risk factors feature in the planning for AGT project security and will remain key considerations for AGT throughout the operation of AGT Projects. Adhering to the Voluntary Principles standards is critical, but will not necessarily be sufficient to protect the human rights of all stakeholders throughout the lives of the Projects. That challenge is defined not only by these standards, but also by a range of risks, expectations, and constraints that AGT can influence, but not control. These factors include the Government of Azerbaijan s past human rights record, and its current willingness to demonstrate respect for internationally recognized standards. Since the dissolution of the Soviet Union and the establishment of the independent Republic of Azerbaijan, the Government of Azerbaijan has taken steps to enhance its human rights record. Despite these steps, however, respect for human rights in Azerbaijan remains weak. Indeed, members of the diplomatic community uniformly reported to the Monitor that the Government s human rights record worsened during 2007: there were increasing restrictions on the freedoms of expression and assembly, and the police routinely used force to disperse demonstrations. 13 Azerbaijan s independent media was heavily suppressed during the course of the year. Eight media representatives were detained and jailed by the Government. Five of these individuals were subsequently released by the President on December 28 th -- the eve of the Solidarity Day of the World. The OSCE, the European Union ( EU ), and the Council of Europe ( COE ) frequently expressed concern during 2007 regarding the Government s crackdown on the independent media, particularly with regard to increasing violations of journalists rights, a decrease in pluralism, and a lack of independence for electronic media. 14 Reporting by 13 See also Country Reports on Human Rights Practices 2007, U.S. Department of State, Report on Azerbaijan, Introduction to the Report (2008)( The government s human rights record remained poor and worsened in some areas. ) 14 See e.g., OSCE Supports Decriminalizing Libel and Insult in Azerbaijan, OSCE, Feb. 6, 2007; Statement of the EU on Media Freedom in Azerbaijan, 665 th Meeting of the Permanent Council,

20 international NGOs expressed analogous concerns, including with respect to arbitrary arrest and detention. 15 At times, the Government appears to be responsive to such external human rights concerns. In 2006, Azerbaijan was elected to the United Nations Human Rights Council, and pledged to promote transparency, the participation of civil society at U.N. meetings, and support the review of the human rights records of all nations. More significantly, the Government entered into a EU-Azerbaijan Action Plan that, among other objectives, seeks to [s]trengthen the protection of human rights and of fundamental freedoms and the rule of law in compliance with Azerbaijan s international commitments. 16 The Action Plan delineates specific steps that the Government should achieve with respect to the rule of law, democracy, economic development, and energy. 17 During 2007, the Government appointed a country Ombudsman for Human Rights and ensured that the Ombudsman s staff participated in local and international trainings. By the end of the year, the office had received more than 30,000 complaints. 18 In addition, the Government reported that during the course of 2007 it took action against 207 police officers for human rights violations: six were criminally prosecuted, 55 were dismissed from the police force, 21 were removed from their positions, and two were administratively disciplined. The EU warned, however, that the crackdown on media freedom during the course of the year was inconsistent with the Government s commitment under the Action Plan, and the COE observed that the general human rights environment had not improved. 19 Overall, the historical backdrop of limited respect for human rights, combined with the relative lack on progress during the past year, presents an ongoing risk to AGT in relying upon the Government s security forces for external project security. This risk underscores the importance of AGT taking steps within its sphere of influence to PC.DEL/406/07, May 10, 2007; PACE Committee Condemns Abuse of Defamation Laws to Silence Media in Azerbaijan, COE Press Release 921 (2007). 15 See e.g., World Report, Human Rights Watch (2008), at p. 363; Ideals vs. Reality -- Human Rights and U.S. Foreign Policy, Testimony of Jennifer Windsor, Executive Director of Freedom House, before the Subcommittee on International Organizations, Human Rights and Oversight, Committee on Foreign Affairs, U.S. House of Representatives, July 12, 2007, at p EU-Azerbaijan Action Plan adopted within the European Neighborhood Policy on November 14, 2006; Introduction, (3) Priorities for Action. 17 Notably, part of the focus on energy includes benchmarks to improve the safety and security of energy infrastructure including the BTC oil-export pipeline. Id., at Section Report by the Council of Europe s Commissioner for Human Rights, Mr. Thomas Hammarberg, on His Visit to Azerbaijan, Chapter 1 (12), (Feb. 20, 2008). 19 Statement of the EU on Media Freedom in Azerbaijan, 665 th Meeting of the Permanent Council, PC.DEL/406/07, May 10, 2007; Report by the Council of Europe s Commissioner for Human Rights, Mr. Thomas Hammarberg, on His Visit to Azerbaijan, Background and Overall Assessment, (Feb. 20, 2008)