Azerbaijan only has future with black gold

May 28, 2001 02:00 AM

It could be the opening scene in a surrealistic movie or a briefly flickering image from a confused and feverish dream. Squeaking and creaking, thousands of horse head pumps bob up and down across an enormous area covered in puddles of oil. The site in the Bibi Heibat oil field extends for miles and is dotted with rotting or rusty oil rigs made of wood or iron. Only now and then a worker appears somewhere among the monstrous structures, located in an outer suburb of Baku, the Azerbaijan capital. The field has been worked for over a century, and its yield is negligible.
But the people who work here do not seem to have the feeling that they are part of a museum world. The Caucasus republic of Azerbaijan has only one future, and it is black, the colour of its black gold. Proven reserves of 780 mm tons of petroleum lie beneath the Caspian Sea, and experts think an additional 450 mm tons are likely to be there as well. The reserves are thought to be mainly in the vicinity of the Abseron Peninsula, where Baku is located and in the south-western part of the Caspian Sea. In other places, test drilling has yielded natural gas.

In a construction cabin in the middle of the Bibi Heibat field, amid dilapidated pump jacks and abandoned excavators, a few engineers sit, taking their midday tea. Three are Azeris, one is Russian. The conversation turns to the country's future, and the oldest of the three Azeris says that in a few years you will no longer recognize the country.
The government will see to it, he says, and notes that things are improving year by year. The Russian gives him a withering look and says he has yet to see any sign of the oil boom. True, plenty of money is coming into the country, and soon there will be even more of it. "But we see none of it, none today and none tomorrow," he says. Where else in the world must an engineer make do with $ 120 a month?
The Azeri insists that he is right and that everything will get better. He tells the Russian that if it does not suit him he can always go back to Russia. But the Russian says, no thanks, it is no better there either.

The oil riches of Azerbaijan, population 8 mm, have drawn the attention of not only its immediate neighbours like Russia but also of far-off oil users like the United States. Here, a modern version of the great game for power and influence has begun, even though two out of 18 consortia prospecting for oil in the Caspian have quit after what, in some cases, were disappointing results of expensive test drilling.
In their oil policy, the Azeris are shrewd businessmen. All people are welcome and no one is to be put off, but something has to be in the deal for Azerbaijan. Fahad Aliyev, head of the newly established Economic Development Ministry, told German Foreign Minister Joseph (Joschka) Fischer, who visited Baku, that Azerbaijan was interested in benefiting from German economic experience in privatising its oil and gas industry, and in cooperating with German companies.
Other countries already are major players in the Caucasus, and their interests mainly clash in disputes over the routes that additional pipelines will need to take. Currently, there are two pipelines that can each ship more than 100,000 bpd. The northern pipeline from Baku to Novorossiisk originally ran through Chechnya but had to be rerouted because of the war. It is used by SOCAR, the Azerbaijani state oil corporation.

The other pipeline runs from Baku to Supsa in Georgia and is run by the Azerbaijan International Operating Co., a consortium set up after the September 1994 treaty on exploiting existing oil reserves was signed. In November 1999, a treaty on a route favoured by the United States was signed. It is to run to the southern Turkish port of Ceyhan. Agreements have since been signed on financing the necessary preliminary work, such as detailed studies on the route to be taken.
But the Ceyhan route is often called a political one that is economically unfavourable. Other routes might be more economic but are politically off-limits -- alink with the Iranian pipeline network, for instance, or a further pipeline via Russia.
Russia still wields considerable influence in the region, and Azerbaijan views Moscow's every move in the Caucasus with mistrust, not least in view of Russian arms shipments to Armenia, with which Azerbaijan is in conflict over Nagorno-Karabakh, an enclave largely populated by ethnic Armenians. A final decision to build the new oil pipeline is not due until May 2002.
Starting in 2004, it could be pumping up to 1 mm bpd to the West. Even then, Azerbaijani oil will not meet more than 1 % to 2 % of world demand, "but you mustn't forget that it isn't OPEC oil, and that means a lot to some people," says a Western diplomat in Baku.

Whichever route the pipeline takes, the Azerbaijani government is said by Western observers to have pursued a cautious oil policy so far. In Baku, a Western businessman says, the government knows how to look after its own interests. Azerbaijan is said to have shown great skill in setting upconsortia to exploit its oil, making both the West and its immediate neighbours part of the process. President Heydar Aliyev, who since last November's parliamentary elections has been suspected of grooming his son, Ilham, as his direct successor, is mainly praised for the so-called Oil Fund. With its assistance, the substantial petroleum revenues that Azerbaijan is expected to earn in the years ahead are to be administered transparently.
As president, Mr. Aliyev appoints members of the fund's supervisory board and is entitled by decree to dismiss it or to amend its rules. Yet the fund is welcomed by international financial institutions because it lays down clear rules by which the oil revenues are to be used and thus can prevent abuse. Whether it does so will depend on whether the president of the day is resolved not to misuse the influence he can exert on the fund.
Were Ilham Aliyev to take over from his father, his present position as vice president of SOCAR would leave him in a conflict of interest, but in view of the abundance of power enjoyed by the president in Azerbaijan he could resolve it in any way he saw fit. Oil Fund revenues come mainly from the state share of profits from oil and gas exploitation and from interest earnings on capital so far totalling about $ 270 mm, which the president has decreed must be invested with reputable banks. Interest earnings are to be used for investment.

Many in Azerbaijan do not think that the oil money will benefit the entire country. Back at the oil fields, an engineer in charge of quality control of Bibi Heibat oil has set up his office in a white-painted building with barred windows. The building is more of a junkyard than an office. A Soviet-era black and white TV set is perched on a fruit crate. The desk is bare apart from a jam jar with an immersion heater in it that the engineer uses to boil the water for his tea.
Drive through Baku, he says, and you will see what is being done and not done. Recently, when his daughter fell seriously ill,he had to take blankets and a pillow to her in the hospital. And he had to find her medication himself, too. "The doctor gave me the prescription, and I drove from dispensary to dispensary around the city to find it. So much for our free medical care," he says. He still has hopes the situation will improve but says it will be a generation before it does.

In Baku, there are few signs of a major upswing. Urgently needed infrastructure projects are taking their time. Newspapers regularly report about minor subway accidents that are caused by faulty maintenance. Tens of thousands of Azeri refugees from Nagorno-Karabakh still live in primitive conditions in camps and makeshift quarters. Talk with them and you will not hear vague hopes of oil riches. The refugees want to return to their homes and villages in Nagorno-Karabakh. They have been waiting to do so for 10 years.
The pensioners sitting in the Richard Sorge Park in the shade of the trees by the gigantic memorial to World War II Soviet spy Richard Sorge want to go home, too. But what they want is even more illusory. They are fond of talking about the Soviet Union, where everything, in their view, was better. But there is no point in grieving over the past, one of them says. "Young people don't want to go back." One day, he says, they may benefit from the oil boom. He seems to have accepted that Azerbaijan's future is black and not Red.

Source: Frankfurter Allgemeine Zeitung
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