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Caspian Sea: Oil Pipeline Wins World Bank Loan

by Peter BehrWashington Post
November 4th, 2003

A planned 1,100-mile pipeline to carry oil from the Caspian Sea toward world markets won a $125 million loan commitment from a World Bank funding unit today. The International Finance Corp. approved the loan after the Azerbaijan government agreed to audited international reviews on how it spends $29 billion in future revenue from oil projects.

The $3.6 billion pipeline, designed to deliver 1 million barrels of oil daily to the Mediterranean beginning in 2005, is a top priority for the Bush administration. It would provide an important new source of oil not under the control of the Organization of Petroleum Exporting Countries.

While most of the project's cost will be borne by BP, its primary sponsor, the IFC funding is important, said Deutsche Bank analyst Adam Sieminski. "It shows a commitment on the part of the international community" to go forward, he said. World Bank officials also approved loans for oil development in the Caspian Sea today and will help syndicate private loans for the pipeline project.

The World Wildlife Fund had urged the World Bank to reject the project, calling it "a potential ecological and social disaster." International social development advocates have warned that the huge windfall of oil revenues flooding into impoverished Azerbaijan could be siphoned off by the country's rulers with little lasting benefit for its citizens.

Recurring misuse of oil revenues by developing country governments is receiving more international attention now, as consuming nations led by the United States turn to former Soviet states, West Africa and other trouble spots for new sources of oil and gas imports.

The IFC loan was conditioned on a series of new policies designed to prevent abuses, said Rashad Kaldany, director of the World Bank's oil resources department.

Revenues will be deposited in a state oil fund whose accounts will be audited annually and publicly disclosed, he said.

Although spending decisions will go before parliament, the fund will remain under the control of Azerbaijan's president Geidar Aliev and his son, Ilham, who was declared the winner in last month's election to succeed his ailing father.

"When the current leadership wants to do something with the oil money, they will," said Svetlana Tsalik, director of Caspian Revene Watch in New York. Her organization -- funded by investor George Soros's Open Society Institute -- is campaigning for more accountability and international oversight for oil projects in developing countries.

"There are always risks," Kaldany said in an interview. "The president still retains overall control . . . but there are now additional institutional arrangements that provide some checks and balances."

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