Azerbaijan International

Winter 2000 (8.4)
Pages 66-69

With Iron Will and Determination
Forging a New Strategic Industry - Baku Steel Company

Interview with Paolo Parviz by Pirouz Khanlou

Paolo Parviz, one of the most successful foreign entrepreneurs in Baku, has dared to undertake another major project - construction of the Baku Steel Factory, a steel-melting factory that will recycle Azerbaijan's wealth of scrap metal into reinforcing bars and steel billets. Parviz, an Azerbaijani who was born in Iran and educated in the West, has been active in Baku since 1993. He was the driving force in establishing the city's world-class hotel complex - Hyatt Regency, Park Hyatt and the Hyatt Towers. Next, he got involved with bottling Shollar water. His group's investment efforts - one of the first in Baku - have paid off, not just monetarily, but also in the personal satisfaction of creating something valuable for the country.

This is the second time that Pirouz Khanlou, Publisher of Azerbaijan International, has interviewed Paolo Parviz; the first time was after the completion of the Hyatt complex. See
"Welcome Mat for Foreign Investment, " AI 7.3, Autumn 1999.

Well, it looks like you're at it again. It seems you couldn't sit still after completing this extraordinary Hyatt complex. Now you've started another bold venture, totally different from before. Why a steel melting factory? How did you get involved with this?

The answer is simple. It's a new, young country that is creating a lot of opportunities for development and investment. I got involved because I think there's an opportunity to create a steel industry in this country. The raw materials are here. Some skilled workers are here. Strategically, it's in a great location for the markets. And basically, we have been greatly encouraged by the President and the Prime Minister to create this industry.

As to not being able to sit still: one has to get up in the morning. One always wants to do something. It really makes no difference what you do during the day as long as you do it well. It's a project.

The idea for building a steel melting factory came to me when I saw all of this raw scrap material for a steel melting industry. The idea just came from looking around the country. Needless to say, there's a great deal of scrap around here because Azerbaijan had been a landlocked country; they couldn't export it to other countries that could melt the steel. So that was good fortune for this country, and there is a considerable amount of scrap for years to come, so long as it is not exported.

So that was the greatest incentive. If you want to create an industry in any country, you start from the basis of having the raw materials for it. That was at the heart of the decision-making process.

Where does the scrap come from?

Used metal products. Old factories. Under the Soviet system, they weren't very conscious of the environment. As cultured as the people were, on the other hand, they were very casual when it came to taking care of the environment. Recycling as it is done in the West is still a new concept for former CIS countries.

Above: President Aliyev at the Opening Ceremony of the Park Hyatt Complex in 1999. Paolo Parviz proudly looks on.

The steel industry is a mother industry that will provide opportunities for other people to buy liquid steel from Baku Steel Company and make other products out of it.

Steel is a basic industry, just like oil is for the petrochemical industry. Besides that, it goes a long way toward cleaning up the environment in Azerbaijan. Once steel is used, for example, in an old car, it's very difficult to get rid of. You can't bury it. In the West, they recycle these things and make new steel out of them. So this industry will serve the country from an environmental point of view as well.

What is the background of steel melting or steel factories in this country?

There has not been a steel melting factory here. There have been a considerable number of machine shops for producing equipment and pipes for the oil industry. But these were all Soviet-built. Most have been closed down because the conditions have changed, the markets have disappeared and there are higher expectations for quality. So they've stopped. But there are possibilities to rejuvenate some of these industries.

What is the background of the building where you've set up the factory?

Above: Rebar manufacturing section of the Baku Steel factory.

Originally, this building was intended to be a factory; it was built in the 1980s to produce small airplanes. Then Moscow changed its mind and decided to convert the factory to make large furnaces for the entire Soviet Union. But it never really went into operation. So we bought the factory, not for what it had been intended for or for the equipment in it, but basically we bought the shell. We needed a shell. Since all of these empty factories are here, it would be silly to build another shell for a factory if you can use an existing one.

We felt that it had the infrastructure. The factory never really functioned for the purpose it was intended to serve. It just sat there. Basically, the equipment was dilapidated. After upheavals and the breakup of the Soviet Union, while Azerbaijan was being rebuilt as a new country, the factory workers (the few that they had) didn't receive any wages. So they basically cannibalized the factory and equipment and took out the motors or whatever they could find - the copper and metal - and sold it.

The result was disastrous, as you have seen. The equipment that was left was not useful to us. We took all of the old equipment out and replaced it with steel melting equipment: a 260,000-ton capacity rebar mill, which is a larger capacity than the country needs at this time, but there are neighboring markets where we can export the steel.

How large is the factory?

We have 50,000 square meters under roof, but the property in total is about 40 acres.

Above: German-made hearth for melting down scrap metal.

Is there any other factory like this in the region?

No, not within 1,200 km. There are factories in Iran and the Ukraine. These are the closest ones.

Are you using local know-how and workers?

Yes, an investment in a basic industry like steel or oil, not only creates jobs within your own company, but it creates jobs for other people in many other industries as well. I was told that our work in constructing this factory has resulted in jobs in Baku for 18 different companies in addition to our own crew, which includes approximately 500 workers right now for building the factory. These 18 companies have sizable contracts with us in helping to build the factory.

As I understand, in terms of the machinery in this factory, you're building it yourself rather than importing it from the outside.

In the steel industry, obviously, there's some sophisticated machinery that we've brought in from Germany, Italy and the U.S. But some types of simpler non-machinery equipment, such as platforms and cooling beds - which are simple to make - are produced here. They're bulky and heavy. You can't afford to bring them from Europe.

We have our own engineers. We get the designs and build them here. Again, this process has created jobs for all of these people during these past two years.

Above: Steel melting equipment with cutting-edge technology imported from Germany, Italy and the U.S. Much of the steel structure of the Baku Steel Factory was built by local industrial crafstmen. December 2000.

You talked about meeting environmental standards in this factory.

Anyone who has been exposed to the West is very conscious of high environmental standards. I think the countries of the former Soviet Union are becoming conscious of that more and more.

You can't produce steel in Baku and generate smoke these days. So what are you going to do? It isn't right or fair. We've invested more than $2 million in equipment alone, just for filtering out smoke to make sure this factory operates up to European standards - the best of European standards. That means we don't create any smoke.

This is probably the biggest investment in the non-oil sector that is being carried out in this country.

Yes, it is. More than $80 million, in two stages.

How did you come up with the idea? Did you wake up one morning and say: "My Hyatt project is done."

Yes, this country offers a great deal of opportunities. I've always received encouragement from the leadership of this country to work here. It's not just money - it's the feeling of accomplishment here. Nobody needs me in America and Europe. But I can be a little bit more useful around here. I'm thankful that they give me an opportunity to do something, so that when I wake up in the morning, I've got a project. It's not always easy, but it certainly beats getting up in the morning and having nothing to do.

It looks like you love to tackle the "impossibilities".

I'm just like most people. I like a certain amount of challenge. If it's easy, it's not fun. Building a steel industry in this country - or in any country - is certainly not an easy thing to do. There are a lot of hiccups. There are a lot of problems, a lot of rules and regulations that you have to overcome. But I think that once you gain the reputation in this country that you are sincerely trying to do something, you get help. I don't really have any complaints about any individual authorities. In fact, they are helpful and they don't get in my way.

Sometimes, there are some impractical laws and heavy bureaucracy that have been left over from the old days. This can be cumbersome and create difficulties, but we overcome them. It's a young country, so I expect these things, and I've gotten used to them. In fact, if they were eliminated and everything was perfect here, I think I would miss them because I'm so good at handling them now (laughs).

Above: Baku Steel Factory is housed in what was intended to be a factory but never went into production because of the collapse of the Soviet Union in 1991. The equipment, though never used before, had been vandalized, and parts sold.

A lot of people complain about these old rules and regulations.

In all fairness, I have certain advantages. I'm Azerbaijani myself. I speak the language. I feel closer to the people. I kiss a lot of men with mustaches around here to get the job done, I can tell you that. And then you have to do a bit of screaming, a bit of fighting, a bit of loving and you move things along. I'm familiar with the culture. I like this culture. We are one and the same people. That gives me an edge over an American who might be landing here. They have the cultural barrier to overcome.

You didn't grow up in this country. Most of your life was spent in the U.S. and Europe. How did you bridge the gap so fast?

I really think that it's in your blood. As you get older you get closer to your roots. I was born in Iranian Azerbaijan. I have certain sympathies for Iran. And yet I have a greater sympathy for Azerbaijanis within Iran because we are a slightly different culture. A Sicilian living inside Italy feels closer to another Sicilian than to a Milanese. A Texan feels closer to a Texan than to a Bostonian. It's all part of human nature. You feel closer to your own people.

Would you encourage others to come here?

If it were easy and perfect, everybody would be here. It's difficult - that's why everybody isn't here. That's the disadvantage. But if you have the guts to come here, you can be first. Then you get a better return on your investment, and you have an opportunity to build something.

So would you even encourage people who don't have any background to come here?

Absolutely. Come here. Be patient and put up with some of the difficulties. This country certainly needs more investing workers than Parviz in this town. I wish there were 200 of us. I wish there were a thousand of us here to help to build the economy. Then we would all benefit. People need jobs, and we need to develop this economy as quickly as possible.

You've worked in a number of countries - the U.S., Europe, the Middle East, Africa. Do you find these people are different from those in other countries, especially those in developing countries?

Well, I have my own definition for the former Soviet Union. There are developed countries like the industrialized nations of Europe and the United States. And then there are the underdeveloped countries, like in the Middle East and Africa. But when it comes to the former Soviet Union, I call it "mis-developed".

They were extremely advanced in certain areas - they were the first to go into outer space. On the other hand, they were extremely weak in the consumer product industry.

There is education; there is culture. The education level in Azerbaijan is higher than in Iran and Turkey. But because of the system, the initiative was not there. Decision-making was centralized. They've always made collective decisions. Everything was collective, including decision-making. When everything is collective, it's inefficient.

How does that affect your work today?

I go beg. I go from Ministry to Ministry. I go to the Prime Minister's Office. They are kind enough to receive me. I move my own papers, because I can't work at their pace. When you undertake a project, timing is crucial because you can lose your shirt in it.

In capitalism, the investor must make a return on his capital or else he goes bankrupt. In the Soviet Union, there was no such thing as bankruptcy, except that the whole country went bankrupt. There was no such thing as individual bankruptcy; it was a collective bankruptcy. They all went bankrupt together - everything.

What difference do you see now with individual workers, given these Soviet hangovers from the past?

They are very good people. They are very appreciative of having jobs. I think we treat them decently. We pay them better wages than anybody else in town. They work hard. We're happy with them.

How would you compare this project with the Hyatt complex? What are the differences? What are the similarities? Because that, in itself, was also a major pioneering project.

Different businesses have different difficulties. But a project is a project. When you wake up in the morning wanting to do a job, it makes no difference. You solve the problem of the day. There are no standard problems. If there were, there wouldn't be any problems, would there? If we knew what the standard problems were, there wouldn't be any because the geniuses of the world would have eliminated them. No matter how many problems you solve, there is always a new one.

But this is life. That's what human beings are marvelous at-we solve the problems as we go along, and we create some if we don't have any.

Do you get tired of resolving these problems?

Of course, I get tired. But I go to bed and sleep well and get up in the morning. You get addicted to solving problems. In fact, if I don't have any, I create some myself. Your total nervous system gets used to solving problems.

You've played an important role in this country, being part of the development of this country after it gained its independence [1991]. How do you see the future of this newly independent country?

You need a sense of history before you can pass judgment about the present or the future. If you take a look at when you and I first came here seven years ago, there were no shops. There was no bread.

There really weren't even any stores - just a few government shops that were mostly empty. If you take a look at what has been achieved in the last six years, it's amazing. Today, you can find anything in this town. In other words, the shop-keeping economy started only about seven years ago when they didn't even have any bread available in the morning. This is a monumental achievement.

If somebody had told you seven years ago: "We plan to open 15,000 shops in Baku," you would have said: "Oh my God, forget it! How can you open 15,000 or 20,000 shops in five years? Impossible."
But this is a perfect illustration. If you give liberty to people and stability to the society, people solve their own problems. The government didn't build these 20,000 (or however many) shops that exist today. The people did.

Shops opened. Bazaars opened. You can find whatever you want in this town today. All the leadership has to do is to create enough stability and security for people to open shops and do the job. This is a perfect example of what happens when people have the chance to solve their own problems.

In Baku, you can find everything: clothing from Italy, Europe, whatever you want. The people did this. That's why the old system didn't work. Everybody sat on their hands and waited for the government to do it.

How do I see the future in this country? As long as there is political stability, people will find a way. The laws will change; the bureaucracy will become less cumbersome. But it takes time to transform a country from a state-controlled Communist-Socialist system of economy to capitalism. Even if you change the laws, a great deal depends on the mentality. Naturally, the bureaucracy doesn't want to let go because the government has always controlled the power.

In democracy and capitalism, the power is supposed to be in the hands of the people. It takes time for that to develop. In a person's lifetime, five or ten years are a long time. But in the life of a country, ten years is nothing. Considering the achievements that have been made these past six or seven years, I would say it's because of the political stability that the leadership has created in this country. And that's why I'm very optimistic.

Do you have any plans to retire?

No, I'm too busy to retire. I don't have time. I'm having fun doing these things. Retiring for me would be like queuing up in line to be hauled away. So no, it's not on my agenda.

Azerbaijan International (8.4) Winter 2000.
© Azerbaijan International 2000. All rights reserved.

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