By Heiko Pleines

20-06-00 Azerbaijan's two refineries are both situated in the capital city, Baku. The Azneftyag refinery has an annual capacity of about 12 mm tons, and the Azneftyanajag refinery can process nearly 10 mm tpy of crude. Both refineries, which are also known as Baku and Novo-Bakinsky, respectively, belong to Azerbaijan's SOCAR.
The Russian crisis of 1998, which affected most former Soviet economies, caused a sharp fall in sales of petroleum products from Azerbaijan's refineries. The resulting drastic decline in prices rendered the oil-refining business in Azerbaijan rather unprofitable. This is turn made crude exports even more attractive for local oil producers.
After world oil prices started to rise, the refineries in Baku were still struggling. Since Azerbaijan's oil production is still far below the levels earlier forecasted, crude supplies to the refineries are limited. Moreover, on foreign markets the plants are facing increased competition from Russia and Turkmenistan, whererefinery capacities are being modernised.
As a result of limited crude deliveries to the refineries, Azerbaijan suffered a fuel crisis in the spring of 2000 and was forced to import crude from Iran in order to produce enough fuel oil to keep the country's thermal power plants working.

Though the refineries are not operating very successfully, SOCAR has found some funds for modernisation projects. In February of 1998, the US company Petrofac begun setting up a new bitumen unit at the Azneftyag refinery; that facility was finished this year. And in March of 1998, a consortium of firms agreed to install a new processing unit that will clean off water for industrial use from petroleum dash.
Then in August of 1999, the US Trade and Development Agency (TDA) announced that it would partly finance a feasibility study on measures to improve the refinement of jet and diesel fuels and the recovery of their usable by-products at the Aznefteyag production unit in Baku.
The refinery processes highly acidic crude oil that requires treatment of the kerosene and diesel streams to meet the quality specifications required by customers. In February of 2000, Azneftyag announced that it planned to held a tender for a $ 300 mm project to construct a new block that would produce high-quality lubricating oils.
However, all projects carried out so far are in total worth less than $ 50 mm. This is much less than envisioned in the ambitious upgrade programs of earlier years. But the real question is whether modernisation is the key to the problems of Azerbaijan's refineries. Like some countries of the former Soviet Union that suffer from over-capacity in refining, Azerbaijan has decided to concentrate its modernisation efforts on one refinery -- in this case the Azneftyag refinery -- and in fact abandon the other.
Considering the quality of its products, the Azneftyag refinery seems to be not worse than most of its competitors from other CIS countries. When operating at full capacity, the Azneftyag refinery can reacha depth of processing of up to 80 %. Yet what is lacking in Azerbaijan (as in most CIS countries) is a petroleum product market that offers profits and makes crude supplies to refineries attractive.