Winter 1996 (4.4)
Ilham Aliyev, VP of SOCAR, is responsible for Foreign Economic Relations.
Let's start with an overview of your department. What does it do?
The Department of Foreign Economic Relations was established after we signed the contract for the development of the fields of Azeri, Chirag and Gunashli which now are operated by the AIOC Consortium.1 Our goal was to create a special department responsible not only to oversee what was going on in the AIOC Consortium but also to expand SOCAR's activity in other areas of international business. We feel that such a working group is critically important, not only for SOCAR, but for the future of Azerbaijan.
Above: SOCAR VP, Ilham Aliyev
We're presently involved with the preparation of necessary agreements and documents with all other foreign companies. SOCAR has already signed two other production-sharing agreements (PSA) for offshore fields.2
However, the work of this department has become very difficult because we need personnel who are specialized in understanding how foreign oil companies operate. Because so many of these companies are eager to work with us, we need to expand our department with highly qualified specialists. We're currently in the process of sending some of our people to train in the United States, the United Kingdom and elsewhere.
Terry Adams told me that he is impressed with how much SOCAR does with so few people.
Well, when you have no other choice, you do it whether you feel capable or not. Fortunately, the few people we have are highly professional, not only in the oil business but also in legal and economic matters. They're lawyers, economists and accountants. These procedures become very complex, especially the accounting procedures. How do you evaluate cost expenditures? And how do you calculate how these expenses will be recovered in the future? Such issues become very complicated. I think our small team is doing a good job despite the pressures. They work night and day. It's what our country needs right now.
The department employs about 50 people?
Approximately. But I think there are plans for expansion. We are faced with new projects. In addition to the consortium projects which I mentioned, we are currently negotiating with Amoco (Unocal, ITOCHU and Delta Nimir) for the offshore Ashrafi and Dan Ulduzu fields (north of the Karabakh field). And we're talking to Elf about Lankaran Daniz.
Of course, the experience we've gained in earlier contracts makes it easier to negotiate these projects. But still, it's very difficult to control the work of three major projects and also be involved in new negotiations. There are only 24 hours in a day.
Let me add that recently, during Parliamentary sessions, some people were questioning why we were in such a hurry to sign contracts with so many foreign oil companies. They asked, "Why are you signing one contract after another?" They felt we should stop further involvement and wait until we got paid from our initial projects, after which we could invest money in new fields.
But I think that approach is wrong. The future of Azerbaijan's economy depends mostly upon how quickly and how efficiently we proceed. The more contracts we sign now means the more companies and the more new countries that will get involved with us.
Since 1994, French (Elf and Total), Italian (Agip) and Japanese (ITOCHU) companies have come here. A new confidence is growing about doing business in Azerbaijan.
It's not easy dealing cross-culturally with all these nationalities.
But still, that's our goal. The more foreign investment we can attract, and the more diversified the regions from which they come, then the more support we can receive in the international arena when we need it.
For instance, the recent ruling on the Porter Amendment of Section 907 (Freedom Support Act) in the U.S. Congress this past September was mostly due to the assistance of American oil companies. Now American humanitarian aid can be sent here without governmental restrictions. If we didn't have good relations with these companies, we would never have received such support. So it's all very much interrelated-politics and economy. Sometimes I don't know which is more important.
Let me emphasize the good will of these companies. Although our oil fields still have not produced anything, companies have already invested a great deal of money here. They're paying good salaries to our people, investing in the infrastructure, refurbishing our drilling rigs and oil platforms, making seismic analyses and, in addition, they're paying taxes.
So you can imagine what will happen when production starts, and when oil gets to the world markets. That will start next year. Many changes are taking place in Baku because of this cooperation-refurbished buildings, new restaurants, cafes, shops, entertainment places, schools and universities. It's all due to these contracts. And to tell you the truth, we're very proud of all this progress.
It's interesting. Our Winter issue is about young people. We're trying to reflect some of what they're thinking and where they're going. In general, we're finding that the youth in Azerbaijan are quite optimistic. Clearly, there's an optimism in this country despite the current, difficult economic situation.
I'm glad that the majority of people now have started to understand the potential benefits of all of these projects. Back in September 1994 when we signed the first contract (AIOC), there wasn't as much optimism. People didn't know what these agreements would bring. Many were skeptical. Some people were complaining that the foreigners would take all our oil. Now everybody knows the truth. That's due to the successful job of the AIOC Consortium. I would especially credit Terry Adams [AIOC's President]. He's doing a great job here.
Everybody can see the results of this effort, and that's why they're becoming optimistic. Young people are very interested in learning foreign languages these days, especially English. They want to benefit from the new economy. It doesn't necessarily mean that they'll all be working directly in the oil business. There are many other possibilities in service-related companies.
In addition to the 20 or so major international oil companies here, there are many smaller service companies which are also establishing offices. They hire our people, pay them good money, create good working conditions, which, in turn, helps to develop our city. You can walk in our streets at any hour of the day or night and have no difficulties. This is the stability which has been brought by establishing international relations.
When I returned to Baku in 1993 after living away from here for quite some time, I remember thinking to myself, "How can I live here?" I was accustomed to big cities like Moscow and Istanbul and had traveled the world. But now, Baku is changing; you don't need to go elsewhere to live a normal life.
Young people understand that the real profit for Azerbaijan will begin within the next five years and continue for the next 30 years over the duration of these contracts. It's the young people who will benefit most of all. And the reason they are very optimistic is that they see results despite the fact that no oil has been produced yet.
Your philosophy about foreign companies has been to "open the doors" for them. Are there still opportunities for other companies to work in Azerbaijan?
I think the options are open for any major company. Our policy has been to attract large companies. And yes, the "door is open." We have no other choice. If we want life to improve here, we must open the doors as wide as possible. After all, whatever the foreign companies create and build here, they will never take away. It will always remain. It will serve them while serving our own people.
We're also in the process of negotiating with Mobil and Chevron (USA). Total (France) recently visited us with good proposals. We spoke with Shell (Netherlands) earlier, but no agreement was reached. Now I've heard that they would still like to work here. Conoco (USA) has made us a very good proposal for increasing the production of Gunashli.
I might mention that there have been other rather large companies which thought they could come in here and just sign a contract for the best fields that were already in production. They didn't want to invest in exploration and development and "waste" three years in the process. They just wanted to come in and take the oil out. It doesn't work that way. I might also add that we're very happy to have managed to attract the Japanese.
Why are you so interested in Japanese companies?
First of all, they are very large. The annual gross, for example, of ITOCHU is approximately $200 billion. They're very big. They have a lot of capital as well as highly developed technology. In addition, their involvement with us has nothing to do with politics, and that's very important for us. We're tired of all these pressures.
What do you mean, "no politics?"
You know, we face many political problems. We have had to make concessions to certain companies and to certain countries. Not only those who joined later, but even the ones who were involved from the beginning. We've had to deal with telephone calls, letters, requests-all of that. Of course, some of the advice and directives did help. But as far as the Japanese are concerned, they're only here to do business, and we appreciate that.
So you feel the Japanese have no other agenda.
Exactly. And when the Japanese do make a decision, they really follow through. We went to Japan and held negotiations with them. After that, we met with the Minister of Trade and Industry. They followed by sending several delegations here-ITOCHU, Mitsui, Sumitomo -the names are a bit difficult to pronounce-Marubeni, Chioda, JAPEX and INPEX. Japan is strong, so their participation is very important for us. And I think the Americans and British are very glad to see the Japanese here, too. You know, when the Japanese come, it's a sign that it's stable enough to invest. We tried to invite them many times in the past, but they were hesitant.
Why do you think the Japanese were slow to get involved?
I don't know why, but the decision-making process is not so easy over there. When they decide, they must have governmental support. The Japanese National Oil Company, which is owned by the state, has to provide the guarantee for private companies to work. So the government takes all the responsibility for risks upon itself. Maybe that's why it took them quite a while to make sure. The Japanese are very serious. I think they will be very successful here.
Let me mention one other thing that seems to be happening here in relation to the foreign companies. We don't differentiate between foreigners and our own people. We have become so mixed now. I think it's fair to say that a new international climate is emerging in Baku.
How do you mean?
Foreigners enjoy living here. Cultures are blending. Baku had always been known for its spirit of internationalism and, once again, after 70 years of Soviet isolationism, it is developing. You must remember that Azerbaijan is a small country. To become strong and independent, we need a strong economy, which, in turn, will enable us to become stronger politically. This is the only way we will be able to safeguard our independence.
Right now, we're trying to satisfy some of the needs of our neighbors and to develop good relations. Russia and Iran have both been included in some of our projects offshore. I think we're managing to find a good balance. Recently, for example, we've signed some agreements with Transneft [the Russian pipeline company] in regard to transporting oil via the "northern route" to the Black Sea.
What about Armenia? Will they be included in the pipeline arrangements?
Actually, in regard to getting the oil to the international market, we don't need Armenia. So we are not in a deadlocked position. Earlier, there had been some speculation that relations with Armenia would improve if we established some transportation routes through Armenia. But, actually, I don't agree with such a proposal. First of all, we have enough alternative transportation routes without Armenia. Secondly, the idea that we should negotiate pipeline routes through Armenia in exchange for Armenia militarily freeing our territories is simply not a wise strategy.3 I'm against it.
Sooner or later, we will become stronger. It will happen in the near future. Our economy will develop, and with it will come political weight. Then there will be no other choice, and our land will be returned to us. These lands will be free. Our people will be able to return to their communities.
What kinds of obstacles do you consider the most difficult these days?
I wouldn't call them obstacles. Let's call them problems or issues. The most critical is transportation. If you can't get your oil to the international market, nobody will produce and nobody will invest. Now we have achieved the first step. We have signed an agreement with the Russian government [January 18, 1996] and the Georgian government [March 8, 1996] for the transport of what is often referred to as "early oil," meaning before the major exploitation of the Azeri, Chirag and deep-water Gunashli fields. Having two alternate routes will always provide us with options. We can use both pipelines or, should complications arise, either one or the other.
Of course, our main concern is that these pipelines be built on schedule. The refurbishment of the northern route through Azerbaijan to the Russian border will be completed by the end of this year. The western route through Georgia to the Black Sea should be completed by the end of 1998.
Our main concern is that nothing happens to these pipelines. As you may know, the areas through which they pass are not necessarily considered the safest, especially through Chechnya (Russia). Potentially, there could be difficulties. Our task is to choose the routes carefully and guarantee their safety.
As far as oil production and the work of the AIOC Consortium is concerned, we don't have any doubts. Everything is going according to schedule, and even though there is a slight delay, they've managed to do a good job, and, basically, stick to the original schedule.
Do you sense that you are part of the process of making history?
I feel that, yes. I'm very proud of that. It's not only my opinion, but also that of the oil company representatives who have come to live and work here. In fact, everyone agrees that this is a unique period in history as a new Azerbaijan is emerging. The future depends a lot on what happens now during these critical years. It's a very sensitive period, so we must move very carefully. We must take each step at the appropriate moment. There isn't much room for error, so we have to use the calculative skill of a surgeon. I hope this period will result in Azerbaijan being totally transformed. When you realize that you're making a small contribution to this process, it's a very satisfying feeling.
Let's talk about your own personal history. Your background is not in oil. What experiences have prepared you for the responsibilities you face in this job in foreign investment?
That's right, my training is not in oil. My biography? Well, I was born here in Baku on Christmas Day, 1961. When I was five, I started school, and by the time I was 15, I had graduated from high school. I was very young; usually people don't graduate that early. And then we moved from Baku to Moscow, which was quite a different environment. It was a city where I had no friends, no relatives, nothing-only my family and sister, who is a little older. There I studied five years at Moscow University of Foreign Relations. I learned English and some French, and then earned a degree in history and diplomacy-the history of modern international relations.
When did you graduate?
In 1982. Then I began postgraduate studies for three years, after which I became a professor at the same university for five years. The students whom I taught came from many countries, especially from the former Eastern bloc. Now some of them hold very high positions in Hungary, Poland and even Germany. At that time, it was the German Democratic Republic.
By 1990, everything became totally reversed due to the events of "Black January" when Soviet troops attacked and killed so many civilians in Baku. At the time, my father was retired. You know that he made a controversial speech while attending a meeting in Moscow at our Embassy, where he accused Gorbachev and the Communist Party of killing innocent people in Baku.
After that, our family faced many difficulties in Moscow. I was immediately fired from my job for no reason, and for the next four or five months I had no job. I was looking for work in my specialty, but as soon as anyone realized that I was the son of Heydar Aliyev, they would say, "No." Our family was branded as a kind of "Enemy of the People." Then my father returned to Baku.
But I understand you had difficulty in Baku, too. Your father once told me that the authorities would not give him an apartment here during that period.
Yes, that's right, because people in Baku had been instructed by Moscow Communist leaders, and they made life impossible for us here. That's when my father returned to Nakhchivan (Autonomous Republic of Azerbaijan separated from Azerbaijan mainland by a strip of Armenian territory). He had grown up in Nakhchivan. In the meantime, I realized that I would never again be able to get a governmental job. At the very least, I wanted to be a school teacher, but that, too, was forbidden.
This was 1990. Hardly six years ago?
Yes, 1990. Life can be full of dramatic and ironic changes. I had done no harm to anyone. I was just with my father, condemning this killing of innocent people in Baku. We were right. And that was the price we had to pay. I had married in 1983 upon graduation. I had two children, and during those five months, I worried about how to buy food for them to eat. When you don't work, you don't get any money.
So the only thing left for me was to set up my own business. And that's what I did in Moscow. For three years, I had my own business there. I was the president of several companies and became very successful. At that time, I never thought that I would ever be involved again in government because I was so fed up. I saw the consequences of being dependent on a situation, so I did my best to become completely independent. I ran several companies in trade and production. We had factories which produced goods. Eventually, I didn't have to depend on anyone economically, and that made me very happy.
By the time my father came to Baku and was elected President in 1993, I had moved my business to Istanbul because the situation in Moscow had changed towards non-Russians. Then my father called me and asked me to return to Baku. It wasn't an easy decision for me. Again, I had to drop everything that I was creating and start all over again. That was late 1993. I've been back here in Baku ever since.
Is there anything else that you would like to mention in relation to foreign companies? When people first come to Azerbaijan, I don't think they expect to find such sophisticated oil management here.
You're right. Some companies have made serious mistakes based on what they imagined they would find here. I can't blame them, of course, because they came thinking that Azerbaijan was a backwater province of the Soviet Union. That it was very poor. That it had so much oil but didn't know how to use it properly (which was the fault of the centralized system).
Some companies came thinking they could do anything here-that they could fool us. For example (as he holds up his tea glass), they thought they could say things like, "This is a nice cup of coffee," when it was really tea. They soon found out it wasn't like that.
Some companies made this kind of mistake. Not many. And there were others that didn't show us the respect that we showed them. You have to realize that because of our Soviet past, we had grown up feeling we were citizens of a vast and great nation. Never mind that we were living in only a small corner of it. Never mind that we were of a different religion than the majority. We still had the mentality that we were citizens of a great superpower. That's entirely another issue-whether the Soviet system was good or bad.
But when the Soviet Union collapsed, we suddenly found ourselves citizens of a small country. We felt very insecure, especially when Armenians attacked and captured our territory.4 We felt very uneasy and uncomfortable.
And when some of the large companies came here, some of them wondered, "What is this Azerbaijan? It's such a small thing on the map. You can't even find it if you don't know where it's situated. We can do anything we want." But it didn't work that way. It's the companies which treated us with the same respect that we treated them which have met with success here.
I should add that the publicity about Azerbaijan on an international scale, especially due to your magazine, has transformed impressions about our country. Worldwide, in magazines and newspapers, they now say, "Azerbaijan, well, that's something good." Five years ago, they thought of it negatively. The image of our country is changing.
In fact, I think your magazine "Azerbaijan International" does much more to change attitudes than some of those who are in responsible positions for propagating our country. Let me speak frankly: this publication is very important, not only because the articles and photos are good, but because it creates a favorable impression about our country. The warmth and concern you express towards Azerbaijan is evident in every issue. We appreciate it very much.
Thank you. I hope our magazine really helps people look beneath the surface to discover the immensely rich intellectual and cultural life here. Once foreigners make friends in Azerbaijan, they have more tolerance for this transitional period. That's when they become deeply attached and are glad they've been assigned here despite the inconveniences and difficulties. We find it very gratifying at the magazine to think that we might be playing a small role in helping shape this transitional period, too.
1 The AIOC Consortium was formed to develop the offshore fields of Azeri, Chirag and deep-water Gunashli. It was signed on September 20, 1994, and ratified by Parliament on November 15, 1994. Azerbaijanis sometimes refer to it as the "Contract of the Century." The AIOC Consortium currently is composed of twelve companies from seven countries including BP (UK ), Amoco (USA), Unocal (USA), SOCAR (Azerbaijan), LUKoil (Russia), Statoil (Norway), Exxon (USA), Turkish Petroleum (Turkey), Pennzoil (USA), ITOCHU (Japan), Ramco (UK) and Delta Nimir Khazar (DNKL of Saudi Arabia).
2 Karabakh field. The second offshore contract was signed November 10, 1995, for the development of the Karabakh field. It is operated by the newly formed CIPCO (Caspian International Petroleum Company) which is led by Pennzoil (US) and composed of LUKoil (Russia), SOCAR (Azerbaijan), AGIP (Italy) and LUKAgip (Russia and Italy).
Shah Deniz. The third offshore contract was signed on June 5, 1996, for the Shah Deniz field which is being organized by British Petroleum (UK). Other companies involved in the Production-Sharing Agreement (PSA) of Shah Deniz include Statoil (Norway), LUKoil (Russia), Elf (France), Turkish Petroleum and the Iranian National Oil Company.
3 The estimated 20% of the territory that Armenians are holding militarily, including Nagorno-Karabakh and the surrounding territory in western Azerbaijan.
4 A cease-fire has been in effect since May 1994; however, Armenians continue to hold 20% of Azerbaijani territory and approximately 1 million people have been displaced from their homes and communities. Many have lived in tent camps for more than three years.
From Azerbaijan International (4.4) Winter 1996.
© Azerbaijan International 1996. All rights reserved.