The Caspian’s re-birth as one of the world’s great oil and gas industry hubs started from just one contract that was signed in 1994 when Azerbaijan had been an independent state for just three years. This year marks the 25th anniversary of that contract – Azerbaijan’s first agreement with foreign oil majors who were invited to invest in the development of the country’s huge oil and gas resources in the Caspian. This contract for the joint development of the Azeri-Chirag-Gunashli (ACG) field was later given the name of “The Contract of the Century” by the then-head of state of Azerbaijan, Heydar Aliyev. The name was a perfect fit to reflect the deal’s importance to the country as it marked the start of its new independent history as well as the beginning of a long journey towards the revival of Azerbaijan’s oil and gas industry, BP Vice President for communications, external affairs, strategy in Azerbaijan, Georgia and Turkey region Bakhtiyar Aslanbayli has told AZERTAC. AZERTAC presents an article by Bakhtiyar Aslanbayli.
A model of a fair and transparent partnership
The Contact of the Century would set a precedent for others to follow – Azerbaijan was the first country among all the former Soviet Union states to allow a broad international participation in its energy sector while maintaining good terms with the country’s regional neighbors.
It became a model framework within which the international oil companies such as BP would have the confidence to make the major investments necessary to develop the oil and gas resources in an environment, which at the time was viewed as posing considerable risks.
The economy, management concepts, methods and processes, technology, and infrastructure needed changes. A new business environment needed to be created.
And the country was quick in making plans to bring about the required changes to provide the confidence for foreign partners to embark on multi-billion-dollar investments. These investments would deliver such projects that had the potential to contribute very significantly to building a strong and stable economy in the country. Having realized this, the country was prompt enough to firmly commit to creating an environment that would support the establishment by foreign investors of a profitable and sustainable business in Azerbaijan.
The government’s plans for building the future of the nation were multi-faceted. They covered the country’s intention to take steps towards creation of a business, legal and tax environment which would be supportive, transparent and consistently applied, of an education system that would build on the past success and channel capable people into business, of a governmental and business culture which would reward integrity and performance.
All this would not only attract foreign investment and build a strong basis for its profitability and sustainability but also boost local businesses.
Now after a quarter of century, if asked what has driven the extraordinary successes of the joint development projects in Azerbaijan, one can confidently say – a trustful, fair, and transparent partnership. Now we can say working together hand-in-hand, BP and partners have built with the government of Azerbaijan and SOCAR one of the most successful public-private business partnerships in the world. And this partnership has led to the full transformation of the country and the region.
A big boost to the economy
Looking back through the chronology of the past 25 years of foreign investors’ presence in the region, one can see a colorful map of activities that are marked by numerous unique and significant milestones based on safe, responsible, and efficient operations in the Caspian resulting in great outcomes for both the country and its business partners.
Therefore, it is important that we all recognize the remarkable progress that has been achieved not only within the country but also in the entire region since the signing of the “Contract of the Century.”
• It has paved the way for over 30 other production-sharing agreements that followed the first contract involving essentially all of the world’s major oil and gas companies.
• It has contributed to a strong and growing economy.
• It has provided a substantial new revenue stream for the state of Azerbaijan that underpins this economic growth.
• It has made a major contribution to the new commercial links that the county has built with the rest of the world.
• It has driven a revitalized world-class offshore hydrocarbon production sector and a reliable, safe, and environmentally sound onshore oil-export system – the Baku-Tbilisi- Ceyhan pipeline, through which the Caspian production is directly transported to the world markets.
• It has created one of the world’s most modern oil and gas processing plants on the shores of the Caspian.
• It has built investors’ confidence to advance the giant Shah Deniz gas and condensate field development project to the stage such that the first-ever gas in the history of the Caspian should be directly delivered to European markets next year via a giant gas value chain starting from Azerbaijan and lying across Georgia, Turkey, Greece, and Albania to Italy.
• It has supported world-class fabrication, training and educational facilities, and a generally enhanced national skill and capability base.
• It has stimulated the formation of a competitive local supply chain.
• It has encouraged the development of highly educated national engineers and other world-class professionals.
• It has generated tens of thousands of local construction jobs.
• It has fostered sustainable development in hundreds of rural communities that have been helped with capacity-building, infrastructure, educational, and lucrative business opportunities.
The scale of the benefits and successes is huge. And they all stem from that original commitment made by all parties to working strictly to the requirements and standards of the agreement, and their contribution to advancing these major projects and delivering on the intent of the production-sharing agreements that after signing were enacted into the country’s law.
It is hard to believe how much change, transformation, progress, and growth of a nation can be credited to just one agreement. Even a few of the successes named here are sufficient for all parties to take pride in their being part of history.
Clearly, much of the credit for this must go to the leadership of the country, their farsighted oil and gas policy, and the intent of the people of Azerbaijan to embrace change, transformation, and growth.
We should recognize that none of this would have been possible without the reforms and other significant efforts made by the government to create a healthy and enabling environment for foreign and local businesses. We should also acknowledge the close cooperation between the Government, appropriate ministries, SOCAR, the foreign oil companies and their sub-contractors.
As a result, in just a quarter of century, the entire nation has been transformed and it now is firmly back on track as one of the world’s premier oil and gas producing nations.
The industry has grown to make the country a regional hub with increasing opportunities for establishing related businesses and creating employment, entering into partnerships and setting up links with global markets, transferring modern technology and global expertise, developing a vibrant services sector for the huge oil and gas projects that deliver substantial revenues.
This has provided the country with an opportunity to persistently target diversification in other sectors of the economy. Huge efforts have been made to re-invest the substantial oil revenues to develop the non-oil sector to the level that would support the sustainability of the country’s rapid economic growth.
The most important benefit – a strong human capital
From the start it was clear that a much bigger number of jobs would be offered by the service sectors than by manufacturing. Therefore, the country placed its focus on supporting the development of a vibrant services sector for oil and gas and also on targeted diversification in other sectors of the economy.
In parallel, the country has consistently targeted the development of a world-class, highly educated and skilled national professionals and workforce aiming to turn its “oil and gas capital to human capital.”
As Azerbaijan’s long-term partner in the Caspian, we are proud of what we have accomplished in training and developing Azerbaijani nationals involved in our projects and operations. In Azerbaijan, we have a genuine success story of developing quite a big army of national professionals who can now compete with international experts and win overseas assignments to work for BP’s global businesses across the world. Just one example – in 2019 alone about 10 young Azerbaijanis have been appointed to senior leadership positions in BP’s global businesses.
This is a clear indication that the country’s human-capital traditions are coming back. Once a hub for developing oilmen and industry professionals for many foreign countries by its oil university, which was a unique leader in the Soviet Union, Azerbaijan is resuming its past success in developing national capabilities. The results are impressive – now look where the country and its non-oil sector are today with the world-class national capacities and human capability that the country is exporting to regional and world markets.
The place to do business in the Caspian
Investing in diverse areas as well as the development of human capital has been vitally important in absolute terms for the economy but also in relative terms for Azerbaijan to seize the opportunity to become the regional business hub for the Caspian. Since the re-establishment of its independence, Azerbaijan has aimed to differentiate itself as the place to do business in the region, and it has successfully achieved that goal.
The story of 25 years of growth and success, of which Azerbaijan can feel justifiably proud, provides a basis on which the country can build as it looks forward to its own and foreign partners’ long-term plans.
As Azerbaijan’s biggest foreign partner and operator of the country’s major oil and gas development projects, we believe that business can continue to flourish in this country and, therefore, together with our partners in ACG and Shah Daniz we have extended both contracts until mid-century.
We see Azerbaijan as a good place to do business. This is a place where investors can effectively set up businesses and companies can operate effectively.
And the people of Azerbaijan are highly and relevantly educated and see business as an attractive, stimulating, and rewarding career opportunity.
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