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Books on Azerbaijan
REPUBLICAN REFERENCE
Area (sq.km)
86,600
Population
7,868,385
Principal ethnic
groups
Azeri 90%
Russian 2.5%
Armenian 2%
Dagestani 3.2%
other 2.3
Capital
Baku
Currency
Azeri Manat
President
Ilham Aliyev
President
Ilham Aliyev
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Update No: 301- (30/01/06)
The key to the problem, but also the solution
With prices rising continually, and companies making substantial profits in
tandem, oil seems one of the most sensible commodities to invest in. Hence the
Middle East.
However, this overlooks underlying concerns about the security of the oil supply
in Iraq and the political stability of other big producers in the Persian Gulf.
So investors will consider alternative sources of oil.
Under the communist regime, several states in the Soviet Union where large
reserves lie were left untapped and relatively unexplored. Kazakstan,
Turkmenistan and Azerbaijan are believed to contain 10 per cent of the world's
potential oil supply and are believed to hold sufficient reserves for at least
40-50 years at current production levels. Indeed, average production among these
former USSR states is projected to increase to 6.2 million barrels a day by
2025.
Kazakstan itself has, at the most conservative estimates, nine billion barrels
in proven reserves, but there are estimates of 29bn barrels; Azerbaijan is
estimated to have 7bn-13bn barrels in proven reserves and Turkmenistan 1.7bn.
However, it is thought that there are many undiscovered reserves.
The question is: is it worth investing in Caspian Sea oil, and why? Politically,
the region has become much more unstable in the past two years. The overthrow of
President Akayev in Kyrgyzstan was the first in Central Asia. And there was a
concern about a domino effect on other governments in the region, especially on
big oil producers such as Turkmenistan and Kazakstan. Governments ruling with an
iron fist, whether backed by the US or Russia, were left on the defensive,
fearing further revolutions. The uprisings in Uzbekistan also acted as a
catalyst for a withdrawal of American presence in the region.
This US withdrawal could be considered a sensible step, to avoid being seen as
propping up dictatorial regimes; on the other hand, it represents a loss of
control. Turkey and Russia have held the key to Central Asia simply on the basis
of linguistic and cultural links, but also the pipelines they provide to the
West. This means, however, that one has to negotiate through an intermediary
state to ensure one's investment is worthwhile because Central Asian countries
are landlocked.
Turkey has managed to act effectively as a guarantor of security of oil and gas,
and has had pro-western governments, which have facilitated the transfer of
these commodities to the West. In years past, though, security issues related to
the ongoing Kurdish conflict have arisen in eastern areas of the country.
Another principal concern is international terrorism. With emerging markets such
as the states bordering the Caspian Sea, it is vital to ensure not only strong
production but supply routes too. As is often the case with a developing market,
however, the production is high and labour is cheap but there is underinvestment
in security of supply. With the growth of extremist Islamist groups in these
countries, the security threat posed is by no means matched by the security that
a western company's pipeline receives.
For example, countries like Turkmenistan share 'borders' with Iran and
Afghanistan and, with borders being porous, potential risks to supply are high.
There is also a concern of an overspill of fighters from disputes ongoing in
Chechnya and Dagestan and on the border of Armenia and Azerbaijan.
Azerbaijan to the fore
Having listed investors' primary concerns, there are obviously sound reasons
to invest in oil in this area of the world. The growth of fundamentalist
elements in the Caspian basin pales into insignificance when compared with the
situation brewing in the Persian Gulf. Similarly, while certain governments have
fallen around the Caspian Sea region, there have not been disturbances in
Kazakstan, Azerbaijan and Turkmenistan.
All three countries have re-endorsed the old regimes, which are authoritarian in
character but have opened up substantially to western investors, and if even
more contracts fail to materialise, these countries may look to the East for
business. The former President of Azerbaijan, the father of the current
President, signed a 30-year contract with a BP-led oil consortium for US$8
billion. Efforts have also been made to develop three oilfields in the east of
the country to produce three to five billion barrels.
Turkey's prospective EU membership could also help, as it would see a reduction
on duties on oil and natural gas entering the EU.
The growing political links between Russia and Turkey will also enable even more
oil and gas to enter Europe more quickly.
Taxes on oil profits are considerably smaller in Turkmenistan (10 per cent) than
in Russia (50 per cent). Kazakstan and Azerbaijan also offer low-tax incentives
to investors. Opec's taxes on oil profits are notoriously excessive and eat into
margins substantially.
Negotiations over future oil contracts may not be in the palace of an Arabian
prince in Manama or Jeddah, but in a yurt outside Almaty or Ashgabat. They may
be an unusual experience, but ultimately look most likely to bring the largest
rewards for those willing to enter into the unknown - and if one delves far
enough, lots of that black commodity beckons
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ENERGY
Baku to sign gas deal with Tehran
Azerbaijan is to sign a contract with Iran for the purchase of about one billion
cubic metres of gas a year, said Azerbaijan State Gas Company Azerigaz's
President, Alikhan Melikov, Sharg reported.
The sides have started coordinating the issues of draft agreement and supplied
gas tariffs. Gas will be delivered through a gas compressor station in Astara,
built last year for gas supplies to Nakhchivan autonomous republic. Melikov,
however, emphasised that some works should be conducted for this project. It
concerns in particular installation of equipment for receiving high-pressure gas
from Iran. The Iranian party are to transport gas under pressure of 55-75 Bars,
that is quite a high pressure for Azeri gas pipeline system. IN order to receive
this gas it is required to diminish its pressure. The Azeri side has already
launched assembly of the necessary facilities. Gas to be received from Iran will
be used mainly for power generation at Alibayramli electric power plant.
ExxonMobil to pay SOCAR for halting drilling
ExxonMobil is to pay Azeri state oil company SOCAR US$50 million as compensation
for halting exploration work at the Nakhichevan and Zafar-Mashal structures,
SOCAR First Vice President, Khoshbakht Yusifzade, said, Interfax News Agency
reported.
"Talks with ExxonMobil about both structures are being wound up. They will
pay US$50 million as compensation for failing to continue exploration
work," he said. He added that the payment for Zafar-Mashal amounts to US$32
million, and for Nakhichevan - US$18 million.
The production sharing agreement for Nakhichevan was signed on August 1st 1997.
SOCAR holds 50 per cent and Exxon Mobil holds 50 per cent in that project. The
first exploration well was drilled from August 2001 - February 2002 and failed
to reveal hydrocarbon reserves. A production sharing agreement for Zafar-Mashal
was signed on April 27th 1999.
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FOREIGN ECONOMIC COOPERATION
Baku urges participation of Iranian firms
A meeting was held between Iranian ambassador to Baku, Afshar Soleymani, and
Azerbaijan's minister for economic development, Heydar Babayev, on December
30th, Interfax News Agency reported.
During the meeting, Babayev invited Iranian firms to actively participate in the
economic activities of Azerbaijan. He stressed Iran's immense economic and
industrial potentials and expressed Azerbaijan's readiness to establish economic
ties with Tehran. He said development of Azerbaijan's non-oil sector was top on
its economic agenda and the country was ready to enter into various partnership
agreements with Iran if favourable ground exists for foreign investment to
thrive.
For his part, Soleymani said Iran's great economic potential and Azerbaijan's
interest in promoting mutual relations provide the incentive for increasing
economic interaction.
He said that economic cooperation between the two countries is growing as he
cited the implementation of joint economic projects in Azerbaijan such as the
transfer of Iranian gas to Nakhichevan and construction of electricity
transmission lines. "The Islamic Republic is ready to cooperate with
Azerbaijan in infrastructure and civic planning activities," Soleymani
said.
Both sides also expressed their satisfaction over the joint economic projects
that have been implemented and exchanged views on the possibility of inking
further agreements to avoid double taxation and preferential tariffs. They also
agreed to hold the seventh session of their Joint Economic Commission in Baku at
a scheduled date.
Meanwhile, Baku Mayor, Hajibala Abutalibov, during a meeting with Soleymani,
expressed hope that the municipality of Baku would be able to benefit from the
expertise of experienced Iranian companies in implementation of its development
projects. He accepted an invitation from Tehran Mayor, Mohammad-Baqer Qalibaf,
to visit Iran and reiterated the readiness of outstanding and experienced
Iranian companies to participate in development activities in Azerbaijan.
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