BP accused of cover-up in pipeline deal

A February 2004 Sunday Times article alleged that BP knew about safety faults with its anti-corrosion sealant coating for its Caspian oil pipeline, but did not disclose them when trying to secure funding from publicly-funded export credit agencies and multilateral development banks. A UK government minister and officials from the UK's export credit agency gave public assurances that the coating had been used extensively elsewhere on similar pipelines, but subsequently-released documents indicate that it had not.

On 15 February 2004, The Sunday Times newspaper published the results of its investigation into safety design faults in the BTC oil pipeline resulting from an anti-corrosion sealant coating. It alleged that BP, the company leading the consortium building the pipeline, knew about these problems – a November 2002 internal BP report, written by a leading expert hired by BP, discovered "serious flaws" in the pipeline’s design, which would make it highly likely to leak. BP did not, however, disclose them when it was trying to secure funding from publicly-funded export credit agencies and multilateral development banks. ("BP accused of cover-up in pipeline deal")

Several public interest groups (The Corner House, Platform, Friends of the Earth, Kurdish Human Rights Project and Baku Ceyhan Campaign) immediately wrote to the UK government minister responsible for the UK's export credit agency, the Export Credits Guarantee Department (ECGD) and to other public funders (the World Bank's International Finance Corporation, and the European Bank for Reconstruction and Development) that had provided financial support to the pipeline. The ECGD had approved political risk insurance worth $150 million for the project in February 2004 at the same time as six other export credit agencies (from the US, Japan, France, Italy and Germany). In addition, 15 commercial banks, and the IFC and EBRD, had provided loans.

The NGOs' letter argued that BP's withholding of information relating to the safety and probity of the project constituted a clear-cut breach of ECGD's lending procedures. They urged the Department to instigate an immediate, independent inquiry into the allegations that are "of a sufficiently egregious nature to warrant immediate termination of the loan approved by the ECGD".

The Government minister responsible for ECGD replied on 19 March 2004, stating that the BTC Consortium did not inform the Department of problems with its field joint coating material because the companies involved regarded its testing and use as a routine part of pipeline construction process and that the coating had not had a materially adverse effect on the project . (see here also)

Both the BTC consortium and BP had since provided ECGD with more information about the coating, and had told ECGD that any problems detected were being dealt with routinely. The choice of coating had been scrutinised and approved by Parsons Energy & Chemicals, an independent engineering company operating on behalf of all the project lenders.

The Minister stated that "The BTC pipeline project will continue to be constructed to international standards" and he was "satisfied that ECGD's due diligence procedures were followed before coming to a decision to provide cover for the BTC pipeline project." He concluded that "there is no merit in your call for a public inquiry into the allegations reported in the Sunday Times".

The Corner House followed this up with a request to ECGD for the information in the independent scrutiny report relating to testing of the coating and its use and record on other pipelines. "We believe that the release of such material is of critical importance if public concerns over the safety of the coating are to be assuaged", wrote The Corner House. "We note that the report was commissioned by the project lenders and that issues of commercial confidentiality should not therefore apply."

The UK Parliament's Trade and Industry Committee did decide, however, to hold an inquiry into ECGD support for the BTC pipeline – to which ECGD officials stated in oral testimony that it knew the coating had not in fact been used previously.

In January 2005, various NGOs including The Corner House wrote again to the Government Minister responsible for ECGD, asking when the Minister had in fact known that the controversial coating had not been used previously. Although the government minister and ECGD officials had given assurances to NGOs, Parliament and to the Committee that the coating had been used extensively elsewhere, documents made public by the Trade and Industry Committee and ECGD's oral testimony to the Committee strongly suggest that these assurances were "unfounded, misleading and inherently unreliable". The groups asked that he

"take immediate action to ensure that the safety of the pipeline has not been compromised by . . . mischaracterization of the threat posed by the choice of SPC 2888 [coating]".