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Transboundary pipeline development and risk mitigation

through Eastern Europe to markets in the European Union.4 Throughout much of the
late 1980s and 1990s, the large-scale oil and gas pipelines that were developed to
bring this new production to markets were largely contained within single countries
or political and legal blocks.5
With the collapse of the Former Soviet Union and the opening of emerging
markets to private sector investment in the mid to late 1990s, pipeline developers
were presented with the task of constructing and operating trans-boundary pipelines
across jurisdictions that lacked international and domestic precedent, or which were
saddled with nascent or anachronistic legal regimes. Given the scale of capital
investment required and the relatively low price of oil, the range of risks which
developers were aware of at that time was focused largely on political, legal, fiscal
and regulatory risks to investment. Against the backdrop of the current
supply–demand dislocations referred to above, the recent collapse of the global
financial markets (and the price of oil), the increasing awareness of project impacts
on people, communities and the environment, the medium to longer-term concerns
with security of supply and climate change, there is an enhanced realisation that the
scope for risk that lawyers now need to be aware of in advising clients on transboundary pipeline developments is becoming much broader.
The development of the Baku–Tbilisi–Ceyhan (BTC) oil pipeline emerged
precisely at a time when the true breadth of potential risks posed to complex
trans-boundary pipeline developments was beginning to be understood. With
Baku–Tbilisi–Ceyhan, the range of risks started to move beyond the direct risks posed
to the project by governments, to a broader assessment of risks that included indirect
hard and soft compliance risks resulting from project impacts on the environment,
people and communities and on the host state’s macro-economy. Together these
direct and indirect risks have taken on increasing resonance over the last decade,
particularly with civil society organisations6 and socially responsible investors, which
have applied increasing pressure on international financing institutions and publicly
traded oil and gas companies. Given that a systemic lack of transparency (in
conjunction with insufficient regulatory oversight) appears to lie at the heart of the
recent global financial crises, the case for re-regulation of private sector activities
within the OECD as well as within ‘emerging’ markets will only grow in strength,
and with this, so will the panoply of new compliance and additional risks posed to
future large-scale investment activities including pipeline developments.
Any credible attempt to deal with the many risks and legal considerations facing
developers of trans-boundary oil and gas pipeline projects would require a book in
itself. We have, therefore, chosen to focus this chapter more narrowly on identifying
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Note that for purposes of this chapter, we do not consider pipelines developed within the context of the
European Union as trans-boundary pipelines, as they are subject to the common directives of the
European Union.
While rare before the 1980s, transboundary pipelines have a relatively long history. For example, note
the original Baku–Batumi oil pipeline (1897) and the long-distance oil transit pipelines that provided
export of Iraqi oil from the Kirkuk field (Northern Iraq) to British-mandated Palestine and to French
mandated Lebanon and Syria during the 1930s.
We have chosen to use the term ‘civil society organisations’ rather than non-governmental organisations
(NGOs) to capture more accurately the wide array of voluntary, civic, social, not-for-profit and nongovernmental organisations that form the basis of a well-functioning democratic society.