William E Browning, Thomas J Dimitroff

interests of a multiplicity of parties who may not be directly involved in any of the
project arrangements. Moreover, where trans-boundary pipeline developments are
undertaken in jurisdictions with laws and standards that are not sufficiently
developed to protect against these impacts, a variety of international stakeholders
may introduce new areas of risk of which project developers and their legal advisors
need to be increasingly aware.11 These concerns will be addressed within the context
of the various risks analysed in Section 4 below.

3. The BakuTbilisiCeyhan (BTC) oil pipeline and the development of the

IGA and HGA framework
The development of trans-boundary oil and gas pipelines and related infrastructure is
perhaps nowhere more critical than in the Caspian Sea Region. The various oil and gas
basins in the Caspian Sea Region containing large-scale proven and probable reserves12
are located at a point where various geopolitical fault lines converge.13 Hydrocarbons
produced from fields located in these basins must traverse vast distances,14 through
jurisdictions with transitional legal and regulatory frameworks and through territories
that contain an abundance of technical, social and environmental challenges before
reaching international downstream markets. The Baku-Tbilisi-Ceyhan oil pipeline and
the South Caucuses Pipeline (a trans-boundary gas pipeline running in parallel) are the
only large-scale pipelines now operating that enable the export of hydrocarbons
produced from the Caspian Sea Region to international markets while avoiding Russian
Federation territory. The BTC oil pipeline traverses 1,764km of onshore territory across
three jurisdictions (the Republic of Azerbaijan, Georgia and the Republic of Turkey) to
deliver more than one million barrels per day of crude oil produced from the
AzeriChiragGuneshli offshore oil fields in the Azerbaijan sector of the Caspian Sea to
Ceyhan on the Turkish Mediterranean coast.
The development, construction and operation of the BTC pipeline across the
three transit jurisdictions in bald reliance upon the existing legal, fiscal and
regulatory frameworks would have materially affected BakuTbilisiCeyhan in at

11 An emerging body of tort law, sometimes referred to as foreign direct liability (FDL), identifies new forms
of civil liability resulting from claims brought in the courts of a developed (OECD) country for an
activity undertaken by a multinational company (MNE) in a developing country. For example, foreign
direct liability may result where a multinational company operates in a state knowing that the state does
not respect the rule of law (eg, international human rights norms) and the host state breaches a
fundamental norm of international law in connection with furthering the activities undertaken by the
multinational company. However, there are trends suggesting that foreign direct liability claims may not
be limited to human rights claims, but may also extend to breaches of health, safety and environmental
standards prevailing in the multinational companys home state but not adhered to by the multinational
company in the developing host state.
12 The Republic of Kazakhstan alone is reported to have in excess of 40 billion barrels of proven developed
and undeveloped oil reserves and probable reserves estimated to be as high as 100 billion barrels. The
Republics of Azerbaijan and Turkmenistan add another 25 billion barrels of oil equivalent in proven oil
and gas reserves, with the totals for probable reserves for the Caspian Region exceeding 150 billion
barrels of oil and oil equivalent (see IEA).
13 Central Asia borders China, the Russian Federation and the Middle East and the US Government has
asserted a strong interest in maintaining an eastwest energy corridor for Central Asian hydrocarbons
that avoids Russian Federation and Iranian territories.
14 Export routes for crude oil and natural gas must traverse considerable distances from each of the Caspian
littoral states via rail or pipelines through Russian Federation territory to the Black Sea and Europe via
pipeline across the length of Kazakhstan to China, via tank ship to Iran and pipeline to the Persian Gulf,
or via the various pipeline and rail options from Azerbaijan, including BTC.

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