23 October 2019

Wednesday, 23:02

CURRENCY

PRECEDENT FULL OF CONFIDENCE

The Contract of the Century has become a role model for large investments by multinational oil companies in projects once considered risky

Author:

01.10.2019

Revival of the Caspian Sea basin as one of the largest global hubs of the oil and gas industry began with a contract signed in 1994, only three years after Azerbaijan gained its independence.

This year marks the 25th anniversary of the contract, the first agreement of Azerbaijan with large foreign oil companies invited to invest in the development of the country's vast oil and gas resources in the Caspian. This contract providing for the joint development of the Azeri-Chirag-Guneshli (ACG) fields was later named by the then President of Azerbaijan Heydar Aliyev the Contract of the Century. The name was an ideal choice reflecting the importance of the deal for Azerbaijan, as it marked the beginning of the country's new independent history, as well as the beginning of a long road to the revival of the oil and gas industry in Azerbaijan.

 

Fair and transparent partnership model

The Contract of the Century has become a role model as Azerbaijan was the first former Soviet republic that made its energy sector wide open for international cooperation, while maintaining friendly relations with neighbouring countries in the region.

The contract became a model which allowed international oil companies, such as BP, to make confidently large investments necessary to develop the oil and gas resources of Azerbaijan under the conditions of the time, which were considered as posing serious risks.

The economy, management concepts, methods and processes, technologies and infrastructure needed significant reforms. It was necessary to create a new business environment.

Azerbaijan quickly implemented the necessary changes that would ensure the confidence of foreign partners and their determination to invest billions of dollars into the economy. These investments could make it possible to implement such projects that would make a significant contribution to building a strong and sustainable economy in Azerbaijan. Understanding the risks and perspective benefits of its actions, Azerbaijan acted quite quickly, firmly declaring its commitment to creating conditions that would contribute to the construction of profitable and sustainable business environment in Azerbaijan by foreign investors.

The government had multifaceted plans to build the future for the nation, including the creation of a business, legal and tax environment that will be favourable, transparent and consistent, an education system based on past achievements, guiding talented people to business, and creation of a state and business culture that ensures integrity and efficiency.

The objective of all these measures was not only attract foreign investment and create a solid ground for profitability and sustainability, but also contribute to the development of local entrepreneurship.

After a quarter of a century, if one asks what contributed to the extraordinary success of joint development projects in Azerbaijan, we can say with confidence that it is a trustful, fair and transparent partnership. We can also say that, working hand in hand, BP and its partners have created one of the most successful partnerships between public and private business in the world with the government of Azerbaijan and SOCAR. This partnership has led to the complete transformation of Azerbaijan and the region.

 

Powerful boost for the economy

Looking back at the pace of events in the last 25 years of presence of foreign investors in the region, one can see a colourful map of activities with numerous unique and significant achievements based on safe, responsible and efficient work in the Caspian, which provided excellent results for both the country and its business partners.

It is important that we all appreciate the remarkable progress achieved since the signing of the Contract of the Century both domestically and throughout the region. This progress has paved the way for more than 30 other production-sharing agreements that followed the first contract, which involved nearly all of the world's largest oil and gas companies contributing to creating a strong and growing economy.

This has also provided a significant new revenue stream for Azerbaijan that supports the economic growth. In fact, the contract has made a significant contribution to the new commercial ties that the country is building with the rest of the world.

It breathed new life into the world-class offshore hydrocarbon production sector and made it possible to create a reliable, safe and environmentally sound coastal oil export system, the Baku-Tbilisi-Ceyhan oil pipeline, through which hydrocarbons from the Caspian are transported directly to world markets.

One of the modern oil and gas refining enterprises on the Caspian coast was also created as part of the Contract of the Century.

The implementation of the contract inspired investors with confidence in the success of the project to develop the giant Shah Deniz gas condensate field, under which next year, for the first time in the history of the Caspian, natural gas would be directly delivered to European markets through a giant supply chain from Azerbaijan through Georgia, Turkey, Greece and Albania to Italy.

The implementation of the Contract of the Century has entailed a gradual development of associated areas, including the construction of world-class production facilities, staff training, support to the education system, and the creation of a national base for vocational training and development, contributing to the establishment of a competitive local supply system, promotion of highly educated local engineers and other world-class specialists.

Under the contract, tens of thousands of jobs were opened for construction works, which contributed to sustainable development in hundreds of rural settlements and, in turn, capacity building, infrastructure development, education and opportunities for profitable business.

The scope of the benefits and successes is enormous. All of them became possible thanks to the initial commitment of all parties to work in strict accordance with the requirements and standards of the contract, their contribution to the promotion of these major projects and the implementation of the provisions of production sharing agreements, which were given the status of law after signing.

It is hard to believe how many changes, transformations, progress and national growth can be attributed to just one agreement. Even a few of these successful achievements are enough to be proud of as part of our joint history.

Obviously, it is worth paying tribute to the leadership of the country, its visionary policy in the oil and gas field and the readiness of the people of Azerbaijan for change, transformation and growth.

Admittedly, none of this would have been possible without reforms and other significant efforts by the government to create a healthy and supportive environment for foreign and local entrepreneurs. Close cooperation between the government, relevant ministries, SOCAR, foreign oil companies and their subcontractors should be underlined.

As a result, in just a quarter of a century, the whole of Azerbaijan has changed, and now it is firmly on the right path of development as one of the world's leading oil and gas producing countries.

The growth of industry has made Azerbaijan a regional centre with growing opportunities for creating related enterprises and jobs, establishing partnerships and expanding ties with world markets, transferring state-of-the-art technology and world experience, developing a dynamic services sector for large-scale oil and gas projects that generate significant revenues.

This provided the country with an opportunity to constantly focus on diversification in other sectors of the economy. Great efforts have been made to reinvest significant oil revenues in the development of the non-oil sector to a level that would support the country's fast and steady economic growth.

 

Strong human capital is the most important advantage

It was clear from the very beginning that there would be far more employment opportunities in the service sector than in the production. Therefore, Azerbaijan has focused on supporting the development of a dynamic sector of services for the oil and gas industry, as well as targeted diversification in other sectors of the economy.

At the same time, Azerbaijan continued on supporting the development of highly qualified national specialists and world-class workforce to turn “oil and gas capital into human capital”.

As a long-term partner of Azerbaijan in the Caspian Sea, we are proud of the successes achieved in training and advanced training of Azerbaijani citizens involved in our projects and operations. In Azerbaijan, we have real successful experience in creating a rather large army of national specialists, who can now compete with international experts and get appointments in the global BP business around the world. Just one example: only in 2019, about ten young Azerbaijanis were appointed to senior positions in BP's global business.

This is a clear sign that traditions of creating human capital are returning to the country. Once a former training centre for oil specialists of many foreign countries with its own oil university, which was the leading educational institution in the Soviet Union, Azerbaijan is resuming its past successes in developing its national potential. The results are impressive: it is enough to take a look at the current position of Azerbaijan and its non-oil sector with world-class national potential and human talents that the country exports to regional and world markets.

 

A place to do business in the Caspian

Investments in various fields, including the development of human capital, are vital both in absolute and relative terms. This will contribute to the Azerbaijani economy and will make the country a regional business hub in the Caspian Sea basin. Since the inception of its independence, Azerbaijan has tried to do its best to become a place for doing business in the region. The mission has been accomplished successfully indeed.

Twenty-five years of growth and success, which Azerbaijan can rightfully be proud of, provides a reliable ground on which the country can rely in anticipation of long-term plans for itself and its foreign partners.

Being the largest foreign partner of Azerbaijan and the operator of its largest oil and gas development projects, we firmly believe that our business will continue to flourish here so that together with our partners in ACG and Shah Deniz projects we can extend both contracts until the middle of the century .

We see Azerbaijan as a great place to do business. This is a place where investors can successfully conduct business, and companies can work efficiently.

The citizens of Azerbaijan are highly educated people, they see business as an attractive, stimulating activity that provides excellent career opportunities.



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