Azerbaijan International

Spring 1998 (6.1)
Pages 83-90

State Oil Company of Azerbaijan

Anticipating a Bright Future
Azerbaijan in the Region

by Ilham Aliyev, SOCAR's VP for Foreign Relations

The following are excerpts from the speech that Ilham Aliyev made to the Asia Society in Los Angeles on March 30, 1998.

Let me begin by providing some brief information about the current economic situation in Azerbaijan. Unfortunately, in the past, not much information had been disseminated about our country in the United States. I remember my first visit here in 1994. Whenever you said "Azerbaijan," not many people even knew where it was. The truth about our country was not known. Either people knew nothing about us or they knew very negative things.

But attitudes are changing. True information about Azerbaijan is spreading, and now officials are beginning to address our problems. After the collapse of the Soviet Union, the economic situation in the Caucasus, as well as in all the Former Republics of the Soviet Union, was very difficult. The difficulties were widespread and, still, in some cases, they haven't changed very much. But, the economic crisis between 1991 to 1993 was felt even more acutely in Azerbaijan because of the military aggression from Armenians who instigated a civil war inside our country at a time when our government was being mismanaged. So I should say that the economic and political situation in Azerbaijan had to be among the very worst that existed among the former Soviet Union republics. Only since 1993 has the situation started to change and become more under control.

Of course, it is very difficult to see immediate changes in the economy. We must promote economic reforms based on a solid economic program and then, after several years, we will see the results. Now after six years of independence, after the economic crisis, after civil war, after several coup attempts, I'm very glad that we are finally beginning to see positive results.

The gross domestic product in Azerbaijan increased to 1.3 percent in 1996 and 5.8 percent in 1997. These are very important achievements. You must take into account that between 1992-1995, the annual decline in GPD was more than 20 percent. Actually, 1997 was the first time since independence that we enjoyed an increase in industrial production. At present, the rate of inflation is very low.

We recently have begun a wide-scale privatization program. Although we started later than other places in the former Soviet Union, more than 10,000 state-owned enterprises have new owners. Our strong commitment to a market economy has led to economic reforms, to our policy of open doors and to our policy of fair economic competition.

Achievements in Oil
But, of course, the most remarkable success we have achieved in Azerbaijan is the development of our huge oil and gas reserves. We started this activity in 1994 when the first production-sharing agreement (PSA) was signed between the State Oil Company of Azerbaijan (SOCAR) and a consortium of the world's leading oil companies. Since that time, which is actually a very short period, much has been done, and we believe we will enjoy even more success in the future.

I should mention that since then, SOCAR has signed eight more production sharing agreements with investments of about $30 billion. Our partners represent 12 countries including the United States (Amoco, Pennzoil, Unocal, Exxon, Chevron and Mobil), the United Kingdom (British Petroleum and Ramco), Norway (Statoil), Japan (ITOCHU), Saudi Arabia (Delta Nimir), Russia (LUKoil), Turkey (TPAO-Turkish Petroleum), Iran (OIEC-Oil Industry of Engineering and Construction), Italy (Agip), France (Elf Aquitane and Total), Germany (Deminex) and Belgium (Petrofina). It takes a while to mention all of them. Three years ago when I was speaking at a similar occasion, it took me much less time.

Part of our policy is to invite various companies from different countries and continents to get involved. Then when these people return to their own countries, they can tell the truth about us.

Foreign Investment
We pay particular attention to the protection of foreign investments in our country. After signing these contracts, Parliament discusses them in detail and ratifies them. Then they are signed into law by the President. This ensures that nothing in the future (the duration of these projects is 30 years) can be changed without mutual agreement. I think this makes the investors more comfortable. They understand that as soon as these contracts are signed, nothing, no matter what happens, can change it. I personally am very happy that American companies are playing a leading role in six of nine offshore projects and that more than 100 American service companies have been awarded more than $200 million in contracts.

The amount of investment in Azerbaijan may not seem very great to you; but for our country, it is significant. Almost $1.5 billion has already been invested since 1994. I'm sure that within several years, this amount will increase dramatically.

As you know, the first oil in the world was produced in Azerbaijan as was true of the first offshore oil. But during the Soviet period, the central government didn't pay much attention to the development of our oil reserves. Consequently, we suffered a lot and production declined. But the infrastructure exists. It just needs significant refurbishment which is presently being done.

Of course, there is no use in producing oil if you don't have a way to deliver it; in other words, if you don't have any access to the world market. This is a problem for us because we don't have such access and are having to create it which has not been an easy thing to do. In addition to the economic problems, various political factors must be considered. Despite the difficult situation, we have succeeded in creating transportation through Russia to the port of Novorossiysk on the Black Sea. This pipeline is operating very successfully now. Another route is being developed through Georgia to the Black Sea.

But the main issue is the construction of the main export pipeline which will allow us to produce as much oil as we want and enable us to deliver it safely to the world market. The most direct way to the world market from Azerbaijan is through the Caucasus. In this respect, the stability in the Caucasus is vitally important not only for us but also for our investors. We want to see the Caucasus united and economically strong, and the countries being very friendly towards each other. I hope that we manage to achieve in the near future.

Too Much, Too Soon?
There are some who have criticized our policy, complaining that we have invited too many foreign companies to Azerbaijan and signed too many oil deals. "Maybe it's time to stop," they say. "Let's leave something for future generations. Don't sign deal after deal." My reply is that if we had not signed the contract in 1994, and if we do not continue now, this will be the greatest mistake that we will leave as legacy for future generations."

Our goal is to prove that Azerbaijan is a reliable partner, a safe place to live and ensure that revenues that we get from oil will be reinvested in other sectors of our economy. This will create the solid base for future generations.

We have more than 100 structures in the Azerbaijani sector of the Caspian Sea. The prognosis for those wells varies. No one can tell the precise amount of reserves but according to our estimates, there are approximately 40 billion barrels of oil and 150 billion cubic ft of gas.

So, in other words, for many years to come, Azerbaijan should be a very attractive country for investors. At the same time, we should begin to think about the future. How long will Azerbaijan be able to depend on oil production? Maybe it seems too early to think about these things now, but we should do it because sooner or later-in 30, 50, maybe 70 years-the oil reserves will be exhausted. We saw what happened to our onshore fields which were exploited for many, many years without proper technology. Now we see offshore fields in decline, too. So we should think about how to make Azerbaijan not only a country which produces oil, but a country which can provide transportation facilities for other companies operating in the eastern part of the Caspian.

Transcaspian Pipeline
In this respect, the decision to build the Transcaspian pipeline is of significant importance. Azerbaijan supports the construction of a Transcaspian pipeline because we think it is the most beneficial, safe, secure and realistic way for transporting oil and gas from Turkmenistan and Kazakhstan. We have proved that we can be a reliable country in oil production, and we can also prove that we are reliable as a transit country. If we manage to achieve that, this will have a significant impact on the general situation in the region. Imagine if the huge oil reserves and gas reserves from Kazakhstan and Turkmenistan could come across Azerbaijan and Georgia. This would change the entire political map of the Caucasus and Central Asia.

Benefits to Azerbaijan
And how will Azerbaijan benefit in the future by cooperating with foreign investors? I should say that according to the contracts we have signed, 70-80 percent of all the profit from oil that we produce will remain in Azerbaijan. That means that our country will get enormous amounts of oil revenue in the future and will have a huge cash flow. This will allow us to think more about our economic priorities.

It should be noted that all these results have been achieved despite the fact that still 20 percent of our territory is occupied by Armenian military forces. One million of our people are refugees on their own land. Tens of hundreds of towns and villages have been destroyed. Thousands of innocent people-women and children-have been killed. Though we have had a cease fire agreement [since 1994], we want to put an end to this war by means of negotiations, based on the principles which were adopted by all members of the OSCE (Organization for Security and Cooperation in Europe) except Armenia. This agreement took place at the Lisbon Summit in 1996. Armenia was the only country which did not accept peaceful proposals of the OSCE.

Armenians Becoming Isolated
But Armenians should understand that their policy on Nagorno-Karabakh will not succeed. It will only lead to self-imposed isolation. They should understand that no one will ever recognize Nagorno-Karabakh as an independent country, and that the Azerbaijan people will never agree to a situation where a huge part of their territory is under occupation. Sooner or later, by negotiations or by other means, Armenia will have to withdraw from the occupied territories and let the people live in peace with their neighbors.

Everything is changing in the post-Soviet era, especially in the Caucasus. Multi-billion dollar oil deals are being signed. Several pipelines are being built. The Eurasian Corridor, I think, will soon become a reality. I hope that the Transcaspian pipeline project will also soon become a reality.

All this process is happening in the Caucasus, but Armenia is not part of it. Armenia has become isolated. It is not participating in the regional development. Armenia will never be a part of this movement until it gives up the occupied territory of Azerbaijan.

I know what is going on in my country. I know what the situation is in the region, and I know how large and dramatic the gap is becoming between the economic situation between Azerbaijan and Armenia.

People from international organizations who visit our region, usually travel to all three southern Caucasian republics-Georgia, Armenia and Azerbaijan. They share their impressions. They say when you come to Baku, you see a booming city along with many things which we did not have in the past such as a good service infrastructure, a construction boom, foreign companies, offices, luxury cars, everything. But when you go to Armenia, you see the same things that existed ten years ago during the Soviet Union. It is not too late for Armenia to join this process. The problem is not only their relation with the Republic of Azerbaijan. Their position puts them completely at odds in the whole region because Azerbaijan is the center of the Caucasus, and the people of the Caucasus and North Caucasus understand and accept Azerbaijan's leadership in this region. They identify their fates with what is happening to Azerbaijan. They realize that if Azerbaijan succeeds in resisting tremendous pressure, they will also benefit. So their support gives us confidence that we are headed the right way. And that gives confidence, in turn, and convinces others in the Caucasus that the future can be changed.

I believe in the bright future of Azerbaijan. In the coming years, I'm sure, we will establish a solid economic base which will enable us to invest in other fields and to support our refugees, veterans of war, and handicapped people who have suffered during the war. It also will enable us to improve the living conditions of our people. We should develop our industries which will later generate income. In other words, oil for us provides the means for achieving our goals. It is not a goal in and of itself.

The White House
Last summer during the official visit of our President to the United States, a very significant occasion took place at the White House where, if I'm not mistaken for the first time in history, four international oil contracts were signed. The State Oil Company of Azerbaijan {SOCAR) signed agreements with Mobil, Exxon, Chevron and Amoco, for the development of four different offshore projects. That event was very important for us because it draws attention to our problems even from among those who do not know Azerbaijan. We feel there is more and more understanding of our problems by U.S. officials. We feel more support for our just cause.

US Bans Aid
When Section 907 was attached to the Freedom Support Act of 1992, banning aid to Azerbaijan, we did not even have an embassy in the United States. You know better than I do how important it is for Congressional candidates to get votes in the United States. And the Armenian community, as I have been told, actively participates in the presidential elections, elections to Congress and Senate. They managed to push this legislature through. But if you don't even know where Azerbaijan is located, and someone comes and tells you that "You know, these guys are bad. They blockade us. They do this and that." You will believe it. And that was exactly the case. Armenians managed to persuade Congress to enact this amendment. Now, it is very difficult to repeal because legislators don't like to confess that they've made mistakes. They don't want to repeal something that they themselves adopted a few years earlier.

But, of course, there is the possibility that U.S. officials will repeal the "907." The situation is changing. Now that Azerbaijan's image is being promoted, I think it would be a very good time for the Administration itself to think about repealing it and not wait for Congress which could take a lot of time.

The Armenian community is actively working against Azerbaijan in the United States, and that's not to their long-term interests. They should cooperate with us. They should try to catch the train that they are missing. They should get involved with the regional development because that is the only way they will progress in their lives.

From history, we know that sometimes oil brings prosperity, while other times, it brings hostility. I'm sure that in Azerbaijan, oil will bring us a bright future. It will create a strong economy and create new possibilities for future generations. It will bring peace to our land and will strengthen our quest for independence.

From Azerbaijan International (6.1) Spring 1998.
© Azerbaijan International 1998. All rights reserved.

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