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 Report - The speech of Mr. David Woodward, BP President, made at the NNF's Monthly Meeting of NGOs on November 22, 2002 (NNF)

 Report date: 25.11.2002

David Woodward
NGO Forum 22nd November 2002

Ladies and Gentlemen,

Good afternoon. Thank you for your invitation to talk about BP's Strategy for Economic Development and Poverty Reduction in Azerbaijan. It is a pleasure for me to do so: much has happened in the last few months and I believe that we find ourselves poised at an exciting moment in our efforts to make a difference to Azerbaijan and its people.

I'd like to cover three principal areas in my remarks this afternoon.

Firstly, the business climate in Azerbaijan. Why? Because it is our view that a sustainable - and sustained - reduction in poverty can only be driven by stable economic growth, which in turn requires a healthy business climate.

Secondly, from our own perspective, we in BP have been very active in progressing our major projects on behalf of ourselves and our partners and I would like to share with you some recent highlights of these activities. As the biggest industrial project in the region, if not the world, our projects will inevitably have a significant impact on Azerbaijan and the Caspian region. I hope that all stakeholders will understand - and share - what we are seeking to achieve through these major investments in making a positive difference to the people of Azerbaijan and the Caspian region.

And this naturally brings me on to the third area I'd like to cover: BP's social and community investment programme. I'd like to tell you what we're currently doing, and our priorities for moving forward.

So, three fundamental themes.

But the key for us lies in how we link these three themes - the business climate, the major foreign direct investments and the various community programmes - in a way that delivers practical, focused and sustained actions on the ground.

Between us, I think we already have most of what we need. We have the plans - the Poverty Reduction Strategy and the Public Investment Programme. We have the resources - the State Oil Fund and many other sources of assistance in various forms. And collectively we have many people, many initiatives, many good ideas.

So we need to combine and coordinate these elements in a way that makes a real difference. And I'm pleased to say that we in BP have recently started discussions with the UNDP to see how we might contribute to an important project along these lines, with three principal objectives:

  • To assess the extent to which State Oil Fund reserves could be used in a responsible way to fund the PRSP
  • To strengthen the linkage between the PRSP, the State Oil Fund and the Public Investment Programme
  • To ensure adequate funding and appropriate use of the Public Investment Programme to reduce poverty.

If I may borrow the UNDP's phrase, it's all about turning Black Gold into Human Gold.

But first, some thoughts on the business climate, where we have seen a number of developments in recent months.

During the 14th May meeting between President Aliyev and representatives of international businesses, I made some suggestions to as to how the business climate could be improved, for the benefit of all businesses operating in Azerbaijan. Each of these suggestions represents a major challenge in its own right, but we should not shirk the opportunity to ask tough questions and drive institutions towards long-term stabilisation, development and - ultimately - success. Our key areas for improvement are the following:

  • Tax legislation should be improved and applied consistently and fairly - for example, claims for advance tax payments and excessive tax audits should cease
  • The banking sector should be stabilised and streamlined to provide better liquidity and lower cost of finance for business
  • Customs fees and regulations should be published and consistently applied - including expedition of the issue of Exemption Certificates to contractors and sub-contractors
  • A clear distinction should be established between people in business and people in government, including a much clearer separation of the roles in those government bodies who currently act as both regulator and provider of services
  • The integrity and quality of the national education system should be re-established
  • The impartiality and independence of the Judiciary should be reinforced along with a program of refreshing and renewing the competence of the Judiciary
  • And there should be improved prior consultation with business and industry on proposed changes to the regulatory environment. In this regard we have been encouraged recently by the responsiveness of the new Ministries of Economic Development and Environment and Natural Resources.

Overall progress has been limited, but we have seen some improvements made to the process for registering new companies, and the improvements proposed to the tax regulations are a step in the right direction. Our call for the establishment of a Business Development Agency has been addressed: in August President Aliyev issued a decree on the Creation of a National Foundation for Assistance to Entrepreneurship. The purpose of the fund is to provide financial and other assistance to the development of entrepreneurship in Azerbaijan, under the supervision of the Ministry of Economic Development.

The dropping of the proposed amendment to the grant law requiring NGOs to register grants prior to utilization was welcome - and a good illustration of the power of collective and reasoned lobbying - although I understand that there is now a renewed challenge to grant funds for NGOs from proposed changes to pension fund contributions.

So we see a number of encouraging signs, but it is clear that there is a long way to go to secure the business environment that we all wish to see - one that encourages entrepreneurs to innovate and prosper. That is the way - the only way - to make a practical difference to doing business in Azerbaijan. It is also the only sustainable, long-term way to tackle poverty reduction.

I'd like now to turn to second of my three themes and share with you some recent progress on the activities that BP conducts on behalf of ourselves and our partners. In short, I think it's fair to say that we've had a very active six months.

The ACG early oil scheme has now produced over 165 million barrels of oil and delivered some 500 million dollars of profit oil to the State of Azerbaijan.

Construction of the ACG Phase 1 project to develop the central part of the Azeri field is almost 40% complete and right on schedule for production to start early in 2005.

Today we employ over 3000 Azerbaijan nationals on our construction projects and we expect this to grow to over 5000 as we move forward. Twenty three local companies are already participating in our construction activities, in everything from painting to pest control; cranes to communications.

This performance has given us great confidence that Azerbaijan can provide a sound foundation on which to build a successful business.

And, therefore, on 18th September, we formally sanctioned two very major projects, the Phase 2 development of the Azeri-Chirag-deepwater Gunashli (ACG) fields and the BTC pipeline project.

Phase 2 will see production rise to more than 800,000 barrels per day and result in a further major expansion of the Sangachal terminal.

BTC will open up a new East-West energy corridor and will permit large volumes of crude oil to be shipped directly to world markets, avoiding the congested Turkish Straits and all its environmental concerns.

But apart from ensuring the efficient implementation of these major projects we are determined to manage the environmental, social and economic impacts such that the maximum number of people in the country and region benefit from our activities. The vision of reduced poverty in Azerbaijan, driven by the sustained generation of employment opportunities in a stable and growing economy, is one which BP supports, and one to which we're firmly committed.

This leads on to my third theme, BP's social and community investment programmes. I'd like to share with you some examples of what we're doing to improve the business climate and to bring the vision of reduced poverty to reality.

We have four main areas of focus:

  • Transparency
  • Supporting effective revenue management
  • Capacity building, both in government and small and medium sized enterprises
  • And Community investments in education and health.

With regard to transparency, we have launched a series of workshops, briefings and seminars for local media, covering aspects of the oil industry, such as the principles of Production Sharing Agreements and the fundamentals of tax. Through building the capacity of the media to report our activities in an informed and objective way, our aim is to stimulate more open and transparent public debate.

We have recently joined with the Eurasia Foundation to support three projects aimed at promoting transparency and accountability. One project will incorporate a commercial law course into two Azerbaijani universities; another will provide training for employees of the Ministries of Finance and Tax, and the State Statistics Committee, who are responsible for introducing international accounting standards to Azerbaijan and for regulating businesses. A third project will create an interactive website to support efforts to reduce corruption in Azerbaijan. The website will be managed by the Azerbaijani branch of Transparency International.

Our support for revenue management is still developing, but BP and our partners have already secured agreement to post our Production Sharing Agreements and our Host Government Agreements on our website. These will lead to a clearer understanding of the payments we make to the government. We are looking at ways to help facilitate responsible and imaginative stewardship of the State Oil Fund for the benefit of all Azerbaijani people.

Turning to our work in support of capacity-building, we opened the Enterprise Centre on 24th of May this year on behalf of BP and our partners. It's already attracted hundreds of local and international companies. Amongst other things, we're using the Centre to provide training for small and medium enterprises. As an example of what we're doing to stimulate longer term, sustainable benefits, an IFC representative is currently based at the Centre and is working closely with the team there to develop business finance schemes for local companies.

We are, as you will be aware, working with you, the NGO Forum, to further our mutual objectives in building capacity through development in Azerbaijan. Our efforts with this Forum are currently focused in four key areas:

  • Firstly, our regular workshops to share our progress on the BTC project - our plans for land acquisition, management of technical issues, our community and social investment programmes. The first workshop was held on 1st November; the second is scheduled for 2nd December. We find these workshops a powerful tool to reinforce - not just in Azerbaijan, but overseas too - the benefits that BTC will bring to this country. I know we can rely on your support for all our projects, and I would like to take this opportunity to thank you for your support.
  • Secondly, we also offer regular workshops on how to get involved in our community and social investment programmes - how to prepare tender proposals, how to apply, how to improve presentation standards and BP's stance on ethics all feature in these workshops.
  • Thirdly, language training for key NGO leaders. This Forum has provided the names of 16 leaders who will be given English language training, sponsored by BP.
  • And finally, we offer access to the Enterprise Centre for meetings and workshops, including the offer of lunch twice a month.

Looking ahead, we are planning to launch a series of Health, Safety and Environmental workshops, seminars and round-table discussions for NGOs within and outside this Forum to reinforce BP's HSE standards and enhance national NGOs' HSE capabilities.

The last of our four key focus areas for community investment is in education and health. Here, for example, we will soon start work on a project to rehabilitate the sewage systems at Sangachal and Umid, both settlements near to our Sangachal terminal. This is a major infrastructure project, to be implemented on behalf of BP and our partners, with a budget in excess of half a million dollars. We chose this project following consultations with local people, who overwhelmingly said that this was the most effective contribution we could make. But we will also implement a community development programme to deliver shorter-term, more direct benefits to the people of this area.

In other community support projects, we have recently concluded agreements with BP Solar and the Ministry of Telecommunications for support to a rural telephony project in 22 villages in the Guba region; and with US NGO Land O'Lakes for support towards the provision of six small cheese processing and ageing units in the rural northwest of Azerbaijan. And let's not forget that we also continue working with local communities - in schools particularly - along our existing pipeline routes.

So with our community investment programme around our areas of operation we aim to provide additional stimulus to economic opportunities for people in the communities and social development for the communities as a whole. But we should be clear that, while these programmes are supported by BP and, in some cases, our partners, tax incentives for grants and donations might encourage other companies to follow suit.

Looking ahead, we expect to be in action in local communities along the BTC pipeline route by the time construction starts around the end of the first quarter next year. In fact Requests for Proposals for BTC community investment projects in Azerbaijan were issued last week. Our timetable will allow us to make decisions on the successful proposals by the end the first quarter next year and get into action soon after that.

So there is more to come as we get underway with our major new projects in ACG Phase 2 and in BTC. As always, we have a clear set of selection criteria. Fundamentally we will select those projects which deliver measurable and sustainable benefits, which can be delivered in partnership with local communities, and which are transparent in the way that they bring those benefits.

In conclusion, we in BP are working hard to translate the vision of poverty reduction into reality, to turn black gold into human gold.

I firmly believe that the collective efforts of all of us - national and international agencies; local and central Government; NGOs; our partners, contractors and consultants - are starting to make a real difference to the people of Azerbaijan to ensure that the maximum benefits from our investments here are shared between us all. I look forward to continuing to work with you to take our initiatives further.

Thank you.

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