correspondence Turkmenistan Turkmenistan Advocacy

Correspondece: EBRD Reply to Civil Society Open Letter regarding CMI Offshore Project in Turkmenistan

In January 2017,  Crude Accountability was among 37 civil society organizations who signed the open letter addressed to the European Bank Bank for Reconstruction and Development regarding the CMI Offshore Project and the Bank’s operations in Turkmenistan. Below is the Bank’s response to that letter. 

Sonia Zilberman

Caspian Energy and Environment Coordinator

Crude Accountability

1 March 2017

RE: Open Letter from civil society re the CMI Offshore project in Turkmenistan

Dear Ms Zilberman,

Thank you for sending the open letter signed by 3 7 civil society organisations, dated 20 January 2017 and addressed to the Board Directors of the European Bank for Reconstruction and Development (“EBRD” or “the Bank”) regarding the CMI Offshore Project and the Bank’s operations in Turkmenistan. Directors have asked Management to provide a response on behalf of the Bank.

The Bank shares your concerns about Turkmenistan’s slow progress over several years in respect of the principles enshrined in Article 1 of the Agreement Establishing the Bank. As you rightly note in your letter, the Bank’s current strategy limits the scope of engagement outside of the private sector and conditions it on meeting previously defined benchmarks (“calibrated strategic approach”). These benchmarks (both political and economic) are used as a tool for measuring progress (or regress as the case may be) towards multiparty democracy, pluralism and market economics. This approach allows the Bank to adjust its operational response more finely and flexibly in response to changes in the economic, business and political environment of the country concerned, limiting the scope of engagement – particularly outside of the private sector – if regress is noted against the benchmarks, and conversely, where progress against the respective benchmarks is noted, the Bank is able to consider broadening its engagement. As stated in the current strategy for Turkmenistan, the Bank is of the view that some progress was made on three of the four economic benchmarks, but no substantial progress was registered on the three political benchmarks; at the same time there was no clear evidence of regression.

In addition, the Bank recognises that the transparency and accountability of Turkmenistan’s public hydrocarbon revenues represents a key transition challenge. Therefore, the Bank is promoting the sustainable development and the introduction of international best practice in the private oil and gas sector. In view of the challenges outlined above, the Bank’s operational response in the current

In view of the challenges outlined above, the Bank’s operational response in the current strategy period under the calibrated approach has been to concentrate its activities in the private sector. The Bank’s investment activities have focused, among others, on providing support to enhancing Turkmenistan’s international integration through support to priority sectors such as regional transport infrastructure – subject to strict conditionalities. In addition, the Bank has been prioritising investments in those segments of the real economy with the best growth prospects and the most likely prospects of reform, including the logistics sector.

With regards to the CMI Offshore Project, which the Bank is considering to finance in Turkmenistan, we would like to clarify several points. As a way of background, the Company (CMI Offshore Ltd) provides maritime logistic support and services to offshore oil developers in the region, and is not directly involved in the exploration, extraction or transportation of oil or gas. It operates a fleet of Anchor Handling Tug Supply/Platform Supply Vessel (AHTS/PSV) units, Standby/Rescue vessels, tugs, crew boats, passenger ferries, barges and survey/diving ships and its services include, among others, emergency response and recovery support and oil spill containment and response in the event of an offshore emergency.

The Project would involve a loan to the Company for the acquisition of an existing AHTS vessel, which is already being operated by the Company under a hire-purchase contract. The Project will thus not result in any additional environmental or social impacts compared with the current situation. An option to extend the loan for the acquisition of further vessels, including liftboats, craneships, hoverbarges or hovercrafts, is integrated in the Project concept as being at the EBRD’s sole discretion and subject to the Banlc’s further due diligence and approval.

As part of the Banlc’ s due diligence for the Project, an independent environmental and social audit (ESA) of the Company, its vessels and operations has been carried out against the EBRD’s Environmental and Social Performance Requirements, and against international maritime safety and environmental regulations and standards, including the International Convention for the Prevention of Pollution from Ships (MARPOL) and other International Maritime Organization (IMO) conventions. The audit confirmed that the Company operates its vessels within established and controlled navigation routes. It has obtained a number of international environmental and safety certifications and registrations, has a sound safety and operational track record and is compliant with the International Safety Management (ISM) Code and the International Ship and Port Facility Security (ISPS) Code. The ESA also concluded that replacement of old vessels with modem vessels will improve safety, reliability and environmental performance of the operations. Furthermore, as confirmed by the Administration of the State Nature Reserve Hazar, the operations maintained by the Company’s vessels to service the objects offshore do not represent a threat to the Reserve’s flora and fauna or to any other protected areas. It was also confirmed by the Administration of the State Nature Reserve Hazar that within this area of operations there is no spawning ground of fish recorded in the Red book of Turkmenistan or of endangered types of fishes.

Please note that the Project Summary Document (PSD) is will shortly be updated to include a summary of the environmental and social impacts associated with the Project and agreed mitigation measures, as required by the Bank’ s Public Information Policy for category B-projects.

Finally, we would like to bring to your attention that the Company has demonstrated highest levels of commitment to investing in local staff, who constitute the entirety of the Company’s operations in Turkmenistan, through skills transfer such as foreign simulator training and international certification schemes for all Captains and First Officers. As part of the CMI Offshore Project, the Company has developed an extensive training programme for up to 100 new employees to be hired once the new charters are obtained. This benchmark will be covenanted in the :financing documentation and monitored during Project implementation.

Please rest reassured that the Bank is consistently applying sound banking principles and fosters high integrity, transparency, high standards of corporate governance and best industry practices in all its private sector engagements in Turkmenistan. These high standards are embedded and reflected in the terms of the Bank’s legally binding financing agreements with all of its clients.

With regards to its Article 1 mandate, the Bank monitors compliance on an ongoing basis. A complete assessment of progress against the 14 criteria which constitute the Political Aspects of the Bank’s mandate is undertaken as part of the country strategy review, which last took place in 2013-2014. The current strategy, adopted on 7 May 2014, notes that the overall human rights record remains “poor” and “more progress is needed”.

The Bank currently envisages commencing the next strategy review, including review of compliance with Article 1, in the second half of 2017. Following usual procedure, consultation workshops with national and international civil society organisations will be held during the drafting stage of the country strategy. In addition, following public disclosure of the draft strategy and its posting on the Bank’s website, written comments on the draft can be addressed to the Bank within a period of 45 calendar days, and will be taken into account before the final strategy is presented to the Board of Directors for consideration. We encourage you to address your comments on the upcoming strategy to the Bank in line with the process outlined above.

Please do not hesitate to contact us for further any queries.

Yours sincerely,

Neil McKain

Director, Central Asia

European Bank for Recostruction and Development