Case studies

The UK Export Finance (previously known as ECGD, Export Credits Guarantee Department) has a long back catalogue of supported projects that fuelled climate change, corruption, debt and human rights abuses. Below are a selection of these projects.

Case Study 1: Human Rights Problems in the Pipeline

The Baku-Tbilisi-Ceyhan (BTC) oil pipeline runs over 1,750 km across Azerbaijan, Georgia and Turkey.

Fishermen protest in Ankara

The construction of the pipeline has been plagued by reports of human rights abuses. Before construction of the project commenced, Baku-Tbilisi-Ceyhan Company (BTC Co) signed controversial Intergovernmental and Host Government Agreements with the countries involved. These agreements take precedence over all national laws except the constitution and require the host governments to compensate BP if any new regulations including improvements in environmental or human rights laws affect the profitability, or ‘economic equilibrium’, of the project. Although BP, under pressure from Civil Society, has undertaken not to invoke the agreements if they affect human rights legislation, this is at their discretion.

The legal agreements were used to truncate the environmental assessment process for the project. There have also been complaints from landowners in Azerbaijan, Georgia and Turkey that they were not properly compensated for the value of their land, violating World Bank safeguard policies. Emergency powers were invoked to acquire land in Turkey. Villagers in Georgia reported that a BTC Public Relations Officer told them that if they protested they would not receive their compensation.

In 2003, Ilham Aliyev the vice president of the state oil company in Azerbaijan and Heydar Aliyev, the son of the president of Azerbaijan made a statement on national television threatening opponents of the project. A statement from the Georgian president also declared that protests against the pipeline would be considered a breach of the law. Despite the multitude of reported infringements on citizens’ rights, UKEF chose to support the project to the tune of £81.7 million.

In 2011, the UK ruled that BP had violated international rules by failing to investigate and respond to complaints from local people of intimidation by state security forces in Turkey. Despite this, the UKEF’s Annual Report 2011 lists the project as ‘compliant’ with international standards.

Case Study 2: Indonesia left paying dictator debts

President Suharto (Photo: Indonesian government)

The UKEF supported British companies in exporting arms to General Suharto’s tyrannical regime in Indonesia. The principal exports were ground attack aircraft (Hawk Jets) and light tanks. During the 1997 East Asian Financial Crisis, Indonesia defaulted and the UKEF is still seeking to recover the monies. As of April 2008, Indonesia owed the UKEF Indonesia owed the UKEF nearly £450 million. We believe the majority of this debt specifically relates to arms sales.

Suharto’s thirty-one year military dictatorship was marked by repression of civil liberties and human rights atrocities. During his first year in office he killed between 500,000 and 1 million politicial activists, imprisoning another 500,000. There is overwhelming evidence that his regime used foreign-bought weapons to suppress civil rights groups and independence movements. Suharto was toppled from power ten years ago and died in January 2008. But Indonesian citizens today are still repaying debts that were instrumental in their own oppression.

The circumstances of the contracts for these arms exports are also dubious. They took place despite public opposition, and there are persistent allegations that bribery was used to secure the deals in the first place. Yet the opacity of the UKEF’s operations prevents these deals receiving the scrutiny they deserve.

Case Study 3: Ignoring the environmental impacts of Sakhalin

Our preliminary view on this project is that the potentially devastating effects of this project on the local environment and in particular on an endangered population of whales and biodiversity in a sparsely populated region are not compensated for by the positive effect of this project on the global climate (supplying primarily gas to a region that is currently dependent on coal for its energy needs).

Western Pacific Gray Whale at risk from Sakhalin project (Photo: Flickr, wilmapasschier)

In 2002, the Sakhalin Energy Investment Company (SEIC) approached UKEF for support for the Sakhalin II oil and gas development. This US$20 billion project in Russia’s far east consists of new oil and gas platforms, offshore and onshore pipelines, a liquid natural gas (LNG) production plant and an oil & LNG terminal. The size and nature of the development meant it was categorised as a high impact project which, according to UKEF policy, requires an environmental impact assessment (EIA). Despite this, UKEF gave a legally-binding commitment to support the project in March 2004, before an adequate EIA had been completed.

Once completed, the EIA submitted by SEIC after construction had already begun, was declared by potential lenders to be ‘unfit for purpose’. SEIC finally provided further information in 2005. However an independent review of the revised assessment made it clear that a range of impacts were not identified by SEIC before construction started and that there were still impacts that had yet to be adequately identified. The project has already caused serious environmental damage. Particularly concerning is the risk to the critically endangered Western Pacific Gray Whale – only 120 individuals remain and the development borders their feeding grounds. SEIC, nonetheless, ignored advice from an expert panel on appropriate levels of noise during construction.

Despite SEIC contravening World Bank standards on indigenous peoples and failure to carry out the necessary environmental mitigation measures, UKEF did not see fit to reject SEIC’s application outright. DEFRA also warned that the environmental risks and impacts outweighed any potential economic benefits. In March 2008 and with a judicial review hearing on the legality of UKEF’s 2004 decision looming, SEIC withdrew their application to UKEF. This five year saga resulted in a significant waste of taxpayer’s resources, because of UKEF’s failure to apply strict environmental and social impact standards to demonstrably unsustainable projects.

Case Study 4:  A Bonny Case of Corruption

Bonny Island LNG plant (Photo: Flickr, Shell)

UKEF agreed to back the expansion of the Bonny Island Liquefied Natural Gas (LNG) project in 2002.  Allegations of corruption associated with Nigeria LNG were already common knowledge when UKEF decided to support the involvement of UK engineering company MW Kellogg, a subsidiary of US multinational Kellogg, Brown and Root INC (at the time, a wholly owned subsidiary of Haliburton).

MW Kellogg is a member of the TSKJ energy consortium which won the contracts to carry out the Bonny Island expansion.

In 2003, French authorities announced an investigation into an agent, Jeffrey Tesler, hired by the TSKJ, who allegedly used money paid by TSKJ to secure contracts through bribes. It was alleged that TSKJ paid $175 million to the agent through one of its offshore companies, and that he used this money to pay bribes to Nigerian officials and expatriate managers of Kellogg Brown & Root. Tesler admitted to a French judge that he had received large sums of money and made payments but claimed they were for legitimate purposes. However, services Tesler provided through his company Tristar included activities such as ‘maintaining favourable relationships with the Client’.

Despite the evidence of bribery and foreign investigations into the case, minutes of meetings between the UKEF and Halliburton show that the UKEF failed to push Halliburton on crucial details of the allegations and told Halliburton that it did not wish to ‘delve into the finer details’ of the consortium’s agency arrangements. The treatment of Halliburton raises serious questions about UKEF’s procedures for dealing with allegations of corruption, and for assessing whether a company should be refused cover.

Following an internal investigation, Halliburton sacked two executives after finding evidence of bribery. Only in 2007, subsequent to French, US and even Nigerian investigations, did the Serious Fraud Office finally launch an inquiry into the case.

In 2009, Kellogg, Brown and Root LLC pleaded guilty in the USA to paying millions of dollars in bribes to Nigerian officials to win the Bonny Island contracts. The company was fined $402 million. Subsequently, MW Kellogg also entered a plea bargain with the Serious Fraud Office and agreed a £7 million fine. UKEF, however, has declined to blacklist MW Kellogg from receiving further support. Under the complex terms of the deal, insurance cover for the project (some £120 million in total) was not given directly to MW Kellogg, UKEF said, but to the bank BNP Paribas, which had not been involved in wrongdoing and should therefore not face any sanctions.