AGREEMENT BETWEEN THE BAKU-TBILISI-CEYHAN PIPELINE COMPANY AND THE GOVERNMENT OF GEORGIA ON THE ESTABLISHMENT OF A GRANT PROGRAM FOR GEORGIA

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1 AGREEMENT BETWEEN THE BAKU-TBILISI-CEYHAN PIPELINE COMPANY AND THE GOVERNMENT OF GEORGIA ON THE ESTABLISHMENT OF A GRANT PROGRAM FOR GEORGIA

2 Agreement between BTC Co. and the Government of Georgia On the Establishment of a Grant Program for Georgia This Agreement is entered into on the date appearing on the signature page hereof by between: The Baku-Tbilisi-Ceyhan Pipeline Company ( BTC Co. ); and The Government of Georgia, represented by the official appearing on the signature page hereof, acting for and on behalf of the Government of Georgia (the Government ); each a Party, and together the Parties. Preliminary Statement BTC Co. and its shareholders are committed to working with the Government to promote economic and social development in Georgia and improve the health, safety and welfare of the Georgian people. The Government recognizes and confirms that the BTC project is of vital strategic importance for Georgia and reaffirms its commitment to working with BTC Co. in accordance with the Project Agreements to achieve timely completion of the BTC pipeline so that the benefits associated with BTC pipeline operations can begin to accrue for the people of Georgia. To demonstrate the Parties mutual commitment to timely completion of the BTC pipeline and to ensure realization of the benefits associated with BTC pipeline operations for the people of Georgia, BTC Co. and the Government have agreed the terms of a grant program for pipeline operations. The Parties believe that this grant program will serve as a leading international model for engagement and support for development by multinational enterprises such as BTC Co. The grant program will form part of the comprehensive program of environmental and social initiatives and activities planned by BTC Co. and its shareholders. The grant program is additional to, and separate from, the Greater Borjomi Initiative ("GBI"), to which BTC Co. has separately committed US $5 million in funding. The GBI is intended to deliver a range of projects for the citizens of an area including the Borjomi, Bakuriani, Akhaltsikhe and Tsalka regions. These projects include helping to clean up illegal dumping sites in Borjomi and Bakuriani not associated with BTC Co. operations, supporting local municipalities in waste management, and providing vocational skills training and enterprise development assistance focusing on the agribusiness and tourism sectors. The purpose of this Agreement is to set out the commitments of the Parties in relation to this grant program and the terms and conditions under which grants will be made. The Parties hereby agree as follows: 1

3 Article 1: Commitment by BTC Co. to Provide Grants Following Completion of Pipeline In consideration of the undertakings of this Government set forth in this Agreement, BTC Co. hereby agrees that it shall provide grants to the Government in the total amount of FORTY MILLION DOLLARS (US $40,000,000), to be paid on and subject to the terms and conditions set out in this Agreement. All grants to be provided under this Agreement are referred to individually as a Grant and together as the Grants. The first Grant shall be in the amount of NINE MILLION DOLLARS (US $9,000,000) and shall be made within 30 days of the date this Agreement is executed. The second Grant shall be in the amount of ELEVEN MILLION DOLLARS (US $11,000,000) and shall be made within 30 days of the date Pipeline Completion (as defined below) occurs. Thereafter, five (5) additional Grants shall be made in equal annual amounts of FOUR MILLION DOLLARS (US $4,000,000.00) during each of the years 2006 through 2010, inclusive, with the first additional Grant being made within 30 days of the first anniversary of Pipeline Completion and further Grants being made within 30 days of each anniversary of Pipeline Completion thereafter, up to the total of five (5) additional Grants. In addition to the Grants in the total amount of US $40,000,000 set forth above, BTC Co. agrees to provide Grants in the amount of ONE MILLION DOLLARS (US $1,000,000) each annually, commencing in 2011 and to the end of the forty-year Primary Term for the Project, to be escalated annually in accordance with the US Consumer Price Index for All Urban Consumers as published by the Bureau of Labor Statistics of the United States Department of Labor or any successor index thereto, as appropriately adjusted and with the base year of Each of these Grants shall be made within 30 days of the each anniversary of Pipeline Completion, commencing in For purposes of this Agreement, Pipeline Completion means the first date on which (1) BTC pipeline facilities have been installed within the territory of Georgia providing a nameplate transportation capacity for the pipeline within Georgia of at least 500,000 barrels of oil per day and (2) at least 100,000 barrels of oil per day on average have been transported by BTC Co. over 30 consecutive days from the Azerbaijan border through Georgia to and across the Turkish border. Article 2: Receipt and Use of Funds By Georgia Each Grant shall be paid directly to a special dollar-denominated interest-bearing account established by the Government at the National Bank of Georgia exclusively for this purpose (the BTC Grant Account ). No funds shall be commingled with the Grants in the BTC Grant Account. The BTC Grant Account and the funds standing to its credit may not be pledged, mortgaged or otherwise used or invested except for the purposes described below. The Government agrees that Grants (including any interest paid on amounts in the BTC Grant Account) will be used solely for the following purposes: (1) Funding of educational programs or activities for primary or secondary age schoolchildren and construction, renovation or refurbishment of educational facilities for such schoolchildren; 2

4 (2) Funding of preventative or primary care health programs and construction, renovation or refurbishment of health facilities such as hospitals or clinics; (3) Social welfare, housing and job training programs or initiatives made generally available to citizens of Georgia without regard to race, color, religion, national origin or gender; (4) Funding of projects aimed at the fostering of ties between Georgian and EU businesses, governments and civil societies, with a view to promoting compliance by Georgian businesses with European Union environmental and social standards, including technical standards, and removal of barriers to trade between Georgia and the European Union; and (5) Supporting job creation initiatives relating to tourism in the Borjomi region. Grants shall be used for discrete and separately identifiable projects or programs with separate budgets and not become or be used as general revenues of the Government. Grants may be used by the Government to fund projects or programs undertaken by non-governmental organizations consistent with the uses set forth above, provided that sufficient information shall be provided about the use of such funds by any non-governmental organization to fulfill the recordkeeping, reporting and auditing requirements set forth in Article 3 and the Annex below. No Grant funds shall be used by the Government in a manner that violates Georgian law, is inconsistent with the principles contained in the United States Foreign Corrupt Practices Act, the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, the United Nations Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with Regard to Human Rights, or is inconsistent with the Joint Statement on the BTC Pipeline Project. No Grant funds may be used by the Government to fund any political activities, including without limitation political campaigning, lobbying and political party activities. Article 3: Transparency and Audit The Parties are committed to the principles of transparency and accountability in implementation of the grant program. Accordingly, this Agreement will be made publicly available by the Parties in English and Georgian promptly following its execution, including by way of posting to a public internet site, and BTC Co. will report publicly the amount and timing of payment for each Grant. The Government shall maintain accounts on a cash basis showing its uses of Grants and detailed and verifiable records of all items of expenditure from the BTC Grant Account. The Government shall prepare and publicly release a report (a Report ) detailing the use of Grants every three months until all funds have been withdrawn from the BTC Grant Account and used in accordance with this Agreement. Each Report shall cover in reasonable detail each of the topics set out in the Annex to this Agreement, shall be prepared in English and Georgian and shall be made publicly available by the Government (which may be accomplished by providing the Report to BTC Co. for posting to a public internet site). 3

5 BTC Co. shall engage an independent third party firm of auditors of international reputation (the Auditor ) to review each Report prepared by the Government and to verify that Grants are being used in compliance with the terms of this Agreement. BTC Co. will provide a copy of the terms of reference of the Auditor to the Government prior to the first audit. The Government agrees to provide all information and assistance, including access to records and individuals, to the Auditor as required for the Auditor to review and confirm each Report and to verify that Grants are being used in compliance with the terms of this Agreement. The Auditor shall report its findings to the Parties promptly following the completion of each audit and an executive summary of such report (in English and Georgian) shall be made publicly available. Article 4: Conditions to the Grants BTC Co. shall have no obligation to make any Grant under this Agreement if at the time such Grant is due to be made: (1) The Government is then not in compliance with the terms of this Agreement or has repudiated its obligations under this Agreement; (2) For the second Grant, Pipeline Completion has not occurred; (3) For each subsequent Grant, BTC Co. has not transported an average of at least 100,000 barrels of oil per day over the past 180 days; (4) The Government is then in material breach of its obligations under the BTC Georgian Host Government Agreement (the BTC HGA ) or in material breach of any other agreement with BTC Co. in relation to the BTC project; or (5) BTC Co. is prohibited from making the Grant under any law or regulation applicable to it or any of its shareholders or their affiliates. Article 5: Taxes The Government agrees and confirms that no Tax of any kind shall be charged to or paid by BTC Co. or any Project Participant in connection with this Agreement or the making of the Grants to the Government. No part of any Grant will be applied to pay any value added tax or other tax or meet any tax liability. In no circumstances will any amounts in excess of the amount of the Grants be payable by BTC Co. as a result of deduction of withholding of Georgian taxes from Grants or from funds in the BTC Grant Account. Article 6: Representations and Warranties Each Party represents, warrants and agrees that: (1) The entry into and performance by it of its obligations under this Agreement has been duly authorized in accordance with applicable law; (2) This Agreement is its legally binding obligation, enforceable against it in accordance with its terms, subject in the case of BTC Co. to bankruptcy, insolvency, fraudulent 4

6 transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors rights and to general equity principles; (3) The person executing this Agreement on its behalf is entitled and authorized in accordance with applicable law to do so; and (4) The entry into and performance by it of its obligations under this Agreement will not violate any applicable law or contract to which it is a party. Article 7: Liabilities and Indemnities BTC Co. shall have no liability under this Agreement other than the obligation to make Grants in accordance with this Agreement. The Government shall indemnify and hold harmless BTC Co. and all Project Participants against any claims, losses or damages of whatsoever nature arising from or in connection with the Grants and the execution and performance of this Agreement. Article 8: Communication The following addresses shall be used for any communication in connection with the Agreement: BTC Co. The Government of Georgia Point of contact: Gia Gvaladze Ministry of Finance Address: 38 Saburtalo Street, Tbilisi Point of contact: David Amaglobeli Tel.: Address: 70 I. Abashidze Street, Tbilisi Tel.: Any notice to be served on a Party shall be sent by pre-paid recorded delivery or registered post or delivered by hand to the above addresses and shall be effective once received. Article 9: Dispute Resolution (1) The Parties shall endeavor to resolve any dispute, disagreement or claim (together, disputes ) that may arise between the Parties in connection with this Agreement through amicable good faith negotiations between the Parties. (2) Should the Parties fail to reach agreement within 60 (sixty) days following first notice by either Party of a dispute, the dispute may be referred by either Party to arbitration. The ICSID rules of arbitration shall apply in accordance with Article 17 of the BTC HGA, which is hereby incorporated in and will apply, mutatis mutandis, to this Agreement. The Government hereby waives any claim to immunity in regard to any proceeding to enforce this Agreement or to enforce any interim or conservatory order or any final award rendered by an arbitral tribunal constituted pursuant to this Agreement on the terms set out in Article of the BTC HGA, which is hereby incorporated in and will apply, mutatis mutandis, to this Agreement. (3) This Agreement shall be governed by and construed in accordance with English law. 5

7 Article 10: General (1) This Agreement shall take effect upon its signing by the Parties and shall remain in force until all funds paid into the BTC Grant Account shall have been used, a Report covering the use of such funds has been provided and the Auditor has completed its audit and issued its final report in accordance with Article 3, unless at any time one of the conditions set forth in Article 4 occurs, in which case BTC Co. shall have the right to suspend disbursement of the Grants, notify the Government thereof and (a) in reference to conditions 4(1) and 4(4), where such conditions are capable of cure, the Government shall have a period of sixty (60) days from the date of such notice to effect a cure and (b) in reference to conditions 4(2), 4(3) and 4(5), where such conditions are not capable of being cured, the disbursement of Grants shall remain suspended. In the event that either the Government fails to timely cure a condition capable of being cured or a condition not capable of being cured by the Government persists for a period of two years from the date BTC Co. notifies the Government of a suspension, then BTC Co. shall have the right to terminate this Agreement. (2) The Parties shall consult regarding any public statements made or issued by them regarding this Agreement or matters arising hereunder prior to such statements being made or issued. All projects funded through the donation by the Government shall indicate clearly in English and Georgian that they have been funded by BTC Co. as part of this grant program through prominent display of the statement Funds for this [program][facility][project] were provided by The Baku-Tbilisi-Ceyhan Pipeline Company, unless BTC Co. requests that such statement not be so displayed. (3) No amendment or addition to this Agreement shall be valid unless made in writing and executed by the Parties. (4) This Agreement constitutes the entire agreement between the Parties and supersedes all previous agreements, arrangements or understandings between them, whether oral or in writing, relating to the matters contained in this Agreement. This Agreement does not amend, modify, waive or affect in any respect the BTC HGA or any other Project Agreement entered into pursuant thereto. This Agreement constitutes a Project Agreement for purposes of the BTC HGA. (5) Neither Party shall be liable for breach of any term of this Agreement which is the result of any cause beyond the reasonable control of the Party in breach. (6) Capitalized terms used but not defined in this Agreement have the meanings assigned in the BTC HGA. The Agreement is executed by the duly authorized representatives of the Parties in Tbilisi in two copies in the English and Georgian languages. In the event of any conflicting interpretations of any provisions of this Agreement as between the English and Georgian language versions, the English language version shall prevail. 6

8 This Agreement is executed by the undersigned on the 19 th day of October, For and on behalf of the Government of Georgia By: Name: Title: For and on behalf of The Baku-Tbilisi-Ceyhan Pipeline Company By: Name: Title: Annex: Content of Reports 7

9 Annex Content of Reports Each Report shall cover the following matters in reasonable detail: (1) The aggregate amount of Grants used in the three month period covered by the Report, and the aggregate amount of Grants used since the first Grant was made; (2) With respect to each project or program funded from Grants: (a) (b) (c) (d) (e) (f) the purpose, objectives and location of the project or target beneficiaries of the program; what governmental entity is administering the use of Grants at that time and what governmental entity or non-governmental organization is carrying out the project or program, and the background and capabilities of the relevant entity to implement the project or program; the amounts of Grant funding used for the project or program; the total budgeted cost of the project or program; and if the project or program is not to be funded entirely from Grants, the sources of additional funding for the project or program; the status of implementation of the project or program and, for ongoing projects or programs, an assessment of (i) actual and expected costs against budget and (ii) benefits delivered against expected benefits; and expectations or plans with respect to future use of Grants, including any committed use of Grants in the future; and (3) Any other matters that BTC Co. may reasonably and in good faith request to assess compliance with the terms of this Agreement, including copies of BTC Grant Account records. 8

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