CHRIS KUTSCHERA 30 YEARS of JOURNALISM (Texts and Photos)

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AZERBAIJAN: Oil Mirage, or the Kuwait of the Caucasus?

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Maya Bas relief

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BakuIt is an unmistakable sign of potential petro-dollar prosperity: the Texans are coming. Flying from Frankfurt to Baku with Lufthansa, ”business class” seating, occupied for the most part by Americans, fills most of the plane, while “economy” passengers are relegated to a small section at the back of the cabin. On arrival, these Americans, who wear Texan hats like those in the cartoons, invariably book themselves in at the “Hyatt Regency”. The only hotel of international standard in Baku, the Hyatt opened last may,  with its $250 a night rooms (basic rate), its French chef, and its swimming pool. It offers expatriates from Houston all the comfort they are used to finding in international class hotels in Dubai, Kuwait or Caracas. To continue feeling at home, they can try a T-bone steak at “Charlies restaurant” or a beer at “Nelson”, the English pub that just opened up on Baku’s heights.

However, visiting American oil men cannot escape the shock that awaits them when they take their first helicopter flight over the artificial island of Neftyanye Kamni or “Oily Rocks”. For below them lies an oil-platform guaranteed to leave experienced American oilmen gasping.  “Unbelievable. I have never seen anything like it. It is like a photo dating of the 194Os”, says a Texan from Pennzoil, the US oil company that built and exploits a gas compression and processing station, the only “normal” unit on Oily Rocks. This artificial island built with Soviet technology that dates back to the 1940s, suffers from a disease that rages in all the former republics of the Soviet Union: total lack of maintenance. It is a disease which has turned so many of these installations into industrial graveyard.

The artificial island of Neftyanye Kamni

Rusty oil installationsThe artifical island of “Neftyanye Kamni”, a unique installation, is actually a huge network of some 70 kilometers of causeways built on steel tubes above the sea.  Trucks and crane traverse the causeways which link a number of platforms and some 4.000 wells. In the centre of this huge steel spider’s web, the central plafform, where the first well was drilled in 1949 by a worker called Mikail Kaverotchkine, looks like a miniature city. It supports several buildings each with multiple floors. In addition it houses a power station, processing plants, an administrative centre, and two buildings which provide a temporary home for the more than 1,000 men and women who work an intensive eight days shift before leaving the artificial island for a week of on-shore rest and recuperation. A bronze effigy of the pioneer worker who built the first well, sits alongside other statues and frescoes glorifying the workers of times gone by, especially those active in the last decade of Staline’s rule -- when the Soviet leadership in Moscow patronized an Azerbaidjan Republic which produced one third of all oil extracted in the USSR.

A total lack of maintenance

Those days are quite over. Seriously damaged in 1992 by a particularly violent storm, the installations of the artificial island show the strains of a terrible neglect that has been going on for at least 15 years. Most installations look as though they were destroyed by war rather than by a storm. Half destroyed buildings, gaping tanks, cranes that look like President Aliyev at the signing of a contractwith AGIP and PENNZOILsculptures made of rust. Employees of the national oil company, SOCAR, looking more like hobos or tramps than professional oilmen with their shabby clothes and unshaven faces, pay scant regard to safery measures, there are no hard hats in evidence. However, it must be said that safery clothing is not made available by SOCAR and with salaries of only 300.000 manats, or just over $60 a month, workers are understandably reluctant to buy their own, especially when even this small salary is frequently delayed for months. 

In striking contrast to all this dereliction is the platform of Pennzoil, an American oil company based in Houston, Texas. The workers on this platform wear impeccable uniforms complete with two-coloured safery helmets. The turbines of the compression station gleam. Although the workers on the Pennzoil platform are paid only 20.000 manats ($4,5) a month more than their colleagues at the national company, they are paid regularly and on time. Producing 3,5 million cubic meters of gas a day, the Pennzoil unit meets about 20 per cent of Azerbaijan’s total needs, thus saving as much as $250.000 a day on natural gas imports. Astonishingly all the gas collected and compressed by Pennzoil was previously allowed to simply escape in the atmosphere. The technicians responsible for the design and contruction of Oily Rock island did not even make provision for the gas to be flared.

Unfortunately Neftyanye Kamni is not exceptional in this. Some 30 kilometres north of Baku is the industrial city of Sumgait, which boasts a concentratation of refineries and various metallurgical and petrochemical industries. It is an industrial cemetery. Pollution is severe, in spite of the fact that several factories which used to operate in the area are now closed down and most of the ones that are still operational are working at only around 20 per cent of their capacity.

A scene of industrial scarring

Everywhere in Azerbaijan the scene is one of industrial scarring. A once busy suburb known as “The 40 Tanks”, situated just outside the capital is now reduced to a number of mostly deserted factories set alongside refugee-built shanties of plastic, wood and corrugated iron. Forty year old Elena, used to work in one of the town’s now-delapidated textile factory as an an engineer. She recalls “the happy days” of Soviet rule when there was work and regular wages, then she could afford all the things she wanted: a car, long since sold, trips to the cinema and holidays in Crimea or Leningrad. Now, there is no industry, only silent factories, dusty abandoned offices and widespread unemployment. Elena’s husband, an economist, also unemployed, was grateful to secure a job as a car park attendant at the airport. He makes about 250.000 manats ($55) a month with tips

Nuri Nuriev, the 62 year old chief engineer at the artificial island of Neftyanye Kamni, has a theory about the total breakdown of Azeri industry. In the “good old Soviet days”, he explains, “everything was coordinated from the oil ministry in Moscow. It was the ministry that supplied all the spare parts and equipement to ensure eveything ran smoothly”, the chief engineer recalls. “We drew up a list of our needs six months or a year in advance and officials from the company would go to Moscow with a plan including projected figures for extraction. We would explain to directors at the ministry that without the spare parts we would not be able to fulfill the plan. They would provide us with what we required”.

“Now”, Nuri Nuriev continued, “we must buy everything with hard currencies either in Russia or elsewhere. We do have workshops capable of making some spare parts but 30 % of the raw materials used come from abroad and we have no money to buy them. Production is paralysed”.

Elena, the former textile factory engineer, underlines another problem. The bulk of goods produced by the factories in Azerbaijan were aimed at markets in the former republics  of the Soviet Union. With independence these “captive” markets largely dried up. Moreover the quality of the products produced in Azerbaijan is not comparable with the quality of imported products. “The quality of shirts and trousers we are able to produce is poor”, says Elena. “They sell badly because the shops now also contain imported products of much higher quality”.

Another reason for the deserted appearance of former commercial centres which is seldom referred to is the departure of several hundred thousand professional and managerial cadres who left the country after the “death”, as they describe it in Baku, of the USSR. After the pogroms of Sumgait (February 1988) and of Baku (January 1990) practically all the Armenians left the country. Of roughly half a million Armenians living in Azerbaijan ten years ago, less than 30.000, mainly women of Armenian descent married to Azeris and elderly people without relatives, remain. And most of those clandestinely. It is estimated that as many as 300.000 Russians also left after the declaration of independence on 29 August 1991. Worse yet was the departure of large number of people of Azeri descent, educated and trained in the Russian mould, who also opted to quit the country for a new life in Moscow. Little wonder those who remain are demoralised. These orphans of the Soviet system struggle on in the midst of incredible material difficulties.

Plagued with the burden of several hundred thousand refugees  -- victims of the conflict with Armenia -- coping with an industrial production rate which is 30% down on 1994 and with a legal minimum monthly salary equivalent to just $1,25  Azerbaijan is on the brink of implosion.

Can this be the country tipped to regain its position as a major oil exporter, the country they are talking about becoming the new Kuwait of the Caucasus?

The contract of the century?

On 28 september 1994 Azerbaijan signed what was popularly described as the “contract of the century” with 11, mainly American, oil companies for the exploitation, with the national oil company SOCAR, of three oil-fields Guneshli, Chirag and Azeri. Production is scheduled to come onstream by the end of 1996 at the rate of a modest 80.000 barrels a day (b/d).

However, a second contract worth $1.7bn and presided over by president Heidar Aliyev, allied SOCAR with Italy  AGIP (5%), Pennzoil (30%), Russia’s Lukoil (7,5%) and LUKAgip (50%), SOCAR keeping only 7,5%, for the exploitation of the “ promising “ Karabakh oil-field, and is likely to boos production.

Meanwhile, a third major contract, for the exploitation of the Chakh Deniz oil-field, several kilometres off-shore in the Caspian see, which would combine the expertise of British Petroleum,  StatOil (Norway),  TPAO (Turkey), and, eventually, the French oil company ELF, which would buy back part of the 40% operated by SOCAR, is scheduled to be formally announced this month. The Iranians, quite upset after been excluded, under American pressure, from the first contract declined to participate in this third consortium which could be formally announced in march 1996.

American giant Chevron and France’s oil company ELF are also currently negotiating exploration rights for three other lots in the south of the Caspian see.

Looking at this magnitude of contracts it is not difficult to imagine that Azeri oil production could, as some industry analysts have suggested, reach about 1.5 million b/d by the year 2.010, putting the country on a par with Kuwait. However, as tempting it is to play with projected figures, it should be remembered that the first barrels of crude extracted from the Guneshli field are not scheduled to come onstream before a still undetermined date, between June and December 1996. And it is only in june 1997 that the second consortium will decide if they are prepared to invest the $8 billion necessary to boost production from around the 80.000 b/d mark to 700.000 b/d. “The production sharing agreement between the foreign oil companies and SOCAR was signed on 28 September 1994. It was approved by the local parliament and later ratified legally on 12 December 1994”, notes Elnar Bergh, spokesman for the consortium. “But before we launch this mammoth project and invest vast amounts of money, we want to be sure that the infrastructure is OK, that we can make business in this country”.

The political stability of the country

The oil companies representatives don’t say it but what they mean is that they want to be reassured about the political stability of the country. After all, three presidents have been in power since independence was declared in 1991 -- Ayaz Mutalibov (took office September 1991), Aboulfaz Eltchibey (June 1992), and Heidar Aliyev (October 1993) -- and each time the oil companies had to begin their negotiations from scratch. Since he came to power two and a half years ago, President Aliyev has survived a coup, in October 1994 and a military uprising in March 1995.

According to popular opinion, it was for the purpose of acquiring more political legitimacy in the eyes of foreign oil companies and Western governments that he organised the first parliamentary elections since independence on 12 November 1995, to be held in the presence of 100 observers from a joint mission of the United Nations/OSCE and a delegation from the Council of Europe. Some 125 members of parliament were to be elected by a fairly complex method whereby 100 candidates were selected from a list of individual candidates, while the other 25 were chosen from lists submitted by the political parties. Voters were also asked to approve or reject the text of a proposed new constitution.

Torn between the desire to acquire a degree of international respectability and his will to totally control the regime, President Aliyev opted for the latter. He began by excluding a number of opponents from the electoral campaign, in particular, Isa Gamber’s “Musavat” party, which claims the heritage of the first Republic (1918-1920) as well as being a strong advocate of free enterprise. An Islamic party was also banned.

The vote took place in disturbing conditions which the UN/OSCE communique described thus: “In many respects the election campaign, the voting and the counting of the ballots did not correspond to internationally accepted standards”. Meanwhile, the Council of Europe delegation, less diplomatically declared there had been “clear irregularities and frauds”.

In private conversations, a number of observers denounced what they considered “organised fraud” at the elections:  frequent interference by police which forced the expulsion of independent observers from voting stations, irregularities in the counting procedure, and, finally, rewriting the election results, led them to call the election a “farce”. But only the foreign observers were shocked by the shameless rigging procedures, the Azeris knew from the beginning what would happen, which is why so many refused to vote, saying weeks before polling started that they already knew what the results would be.

President Heidar Alyev, despite his election “success” is not out of the woods yet, several serious challenges remain. Tension is increasing in the camps where several hundred thousand Azeri refugees, displaced by the war with Armenia, have spent their third winter in tents, under terrible conditions. The population cannot be expected to tolerate the deterioration in the standard of living indefinitely, especially while corruption is raging at all levels of the administration.

For the next three or four years, President Aliyev will have to be satisfied with the “bonuses” and other cash payments made by foreign oil companies. Although the oil companies remain evasive about the extent of their financial commitment, these should amount to between $400 million and $500 million a year. However, this is very little, a mere fraction of what will be needed to restore a ruined country.

If President Heidar Aliyev, who spent his first career working for the KGB, has already demonstrated his talents of cunning and diplomacy, he knows that at the age of 73 he has only a short period of time left to transform Azerbaijan in the Kuwait of Caucasus. A dream, or a mirage, for the next millenium.

(The Middle East magazine, March 1996; Valeurs Actuelles, 24 Août 1996; Al Wasat, 1 January 1996)

 

 

 

 

 

 

 

 

 

 

 

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