The European Bank for Reconstruction and Development is pushing ahead with plans to lend $500 million to Azerbaijan’s Southern Gas Corridor project after the nation was suspended from an international oil-wealth transparency watchdog.
The development bank is “progressing” its financing to the $40 billion pipeline project with a final board decision expected by the end of the year, Suma Chakrabarti, the EBRD’s president, said in an interview in London.
Azerbaijan withdrew from the Extractive Industries Transparency Initiative in March after the organization suspended it following criticism from human rights groups over the nation’s crackdown on civic freedoms. Executives at the EBRD, whose mandate includes promoting democracy, have said that the status of Azerbaijan’s EITI membership would be an important factor in its decision to lend.
“What’s happened on the EITI is very, very unfortunate,” Chakrabarti said. He was critical of the watchdog’s decision, saying that “quite a lot of people” were “worried about some of the criteria that are now being used in EITI.”
The head of Azerbaijan’s oil wealth fund in March criticized EITI for shifting its mandate beyond the promotion of transparency in how governments use oil, gas and metals wealth. The country will continue to disclose all information related to revenues received from extraction industries.
“The question really is whether the Azeris are adopting the principles, not just by saying they are but by showing transparency in what they do,” Chakrabarti said. “That’s a judgment we’ll make.”
Oslo-based EITI was set up in 2003 to bring together governments, companies and non-governmental organizations to improve the accountability of commodities payments. It downgraded Azerbaijan’s membership in 2015 after the nation’s crackdown on NGOs before suspending it in March for failing to take sufficient steps to create an “enabling legal and de facto environment for civil society.”
EITI’s requirements were necessary for NGOs to be able “to ask the questions they need to ask to hold the government and companies to account,” Dyveke Rogan, a policy director at the group, said by phone. After Azerbaijan’s withdrawal, there would be a discussion about whether those requirements were serving their purpose, she said, but “unless EITI decides to change them, the fairest thing is to apply them.”
The EBRD is considering the loan for Azerbaijan’s share of the Southern Gas Corridor project, whose shareholders include BP Plc and Turkey as well as Azerbaijan, which would deliver Azeri gas directly to Europe for the first time. The project has political backing from western governments as a means to reduce European dependence on Russian gas supplies.
Southern Gas Corridor CJSC, the state-owned vehicle responsible for Azerbaijan’s share of the project, has since December secured loans totaling $1.5 billion from international financial institutions including the World Bank, according to statements from the lenders. It has raised $2 billion from two bond sales including one in March.
Chakrabarti said that the pace of economic and political reform in Azerbaijan had slowed.
“Progress in the last year or so has stopped, really,” he said. “There needs to be a bit of a rejuvenation, I would say, right now on the reform side.”
Abbas Aliyev, the spokesman for the Azeri Ministry of Economy, declined to comment.