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Azerbaijan
// MERCI, BAKU!
Azerbaijan, where journalists from (Dengi) Money magazine and the NTV program Namedni (The Other Day) were staying on this occasion, was once one of the few Soviet republics to have an export surplus. Today, the republic is trying to reestablish the positions it lost after the collapse of the Soviet Union.
Caviar with Fire
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| The farther out to sea, the more oil |
A Russian hearing about Azerbaijan immediately thinks of someone in a Caucasian-style cap [the large round hat worn in the Caucasus] who gets rich by selling carnations and tangerines in the market. Someone else might think nostalgically about wines, ports, and brandies like Kyurdamir, Agdam, Alabashly, and Absheron. No matter that Azerbaijanis don’t wear Caucasian hats, that they’re poor (the average monthly wage in the republic is $40–80), that the city of Agdam in Nagorno-Karabakh was occupied long ago by the Armenians, or that oil, petroleum products, and cotton, and not tangerines, account for about 75% of Azerbaijan’s exports.
There were also Chinar refrigerators and Bekashki air conditioners made in Baku, which to this day cool residents of Central Asia and southern Russia. And when Russian patriots speak of sturgeon and black caviar as traditional Russian foods, they forget that Iran and other countries bordering on the Caspian Sea, including Azerbaijan, supply the bulk of these products to the world market, not Russia.
“So you didn’t know we produce most of the caviar in the world, eh?” asked my companion in the restaurant. Seeing my look of surprise, he added, “Well, maybe not most… But ours is the tastiest! And you just don’t make sturgeon shashlik like we do.”
I also learned some other interesting facts; for example, the oil in Azerbaijan is of such high quality that it hardly needs any refining. It was in Azerbaijan too that Alfred Nobel invented dynamite, started the world’s first commercial oil production, and established the Nobel Prize.
Not everything is perfect here, but to their credit, the local residents show no hostility towards foreigners, even though they know that people in Moscow and other Russian cities call them derogatory names. They deplore it, but they don’t take offence; on the contrary, they welcome guests with effusive Caucasian hospitality. Sometimes the police may stop “persons of non-Caucasian nationality” on the street to check their registration [police in Russia often stop “persons of Caucasian nationality” on the street for the same reason], but their police are paid even less than ours.
In everything else, people here treat Russia with respect like an older neighbor. This was the case even when Abbas Abbasov, the first vice-premier of the Azerbaijan government, was discussing the problem of “Russian hospitality” during our trip to Baku. Right after the Chechen terrorist attack on the theater on Dubrovka, a lot of Azerbaijanis experienced it and one even died after an encounter with the OMON [special police squad].
How the Nobels Worked on the Diesel
Azerbaijan’s main wealth and pride are oil and gas. According to classical sources, the ancient inhabitants of Absheron were the first to produce and use oil (back then, oil was collected in buckets from wells three meters deep). It was said that methane flares shooting out of the earth around Absheron made such an indelible impression on Zoroaster (who was a native of the area), that he was moved to found the great ancient religion of fire worship known as Zoroastrianism.
The world’s first commercial well was drilled here by the Russian engineer F. Semenov in 1848, 11 years before the first well was drilled in America. Oil continued to be collected in buckets and transported through the Caucasus in barrels carried by donkeys until the second half of the 19th century. However, as world demand for oil increased, it became obvious that there was a catastrophic shortage of donkeys in Russia. And in fact, it was the Nobel brothers who laid the foundations for modern oil production, storage, and transport technologies.
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| Caviar – black gold like oil, but tastier |
Alfred Nobel himself never came to the Caucasus; instead, his older brothers Ludvig and Robert worked here and set up the Nobel Brothers Oil Production Company (Branobel) in 1879. By that time, Alfred had invented dynamite and had become rich from it, but he had also suffered tragedy: an explosion in his workshop killed his younger brother Emil and maimed his father Emmanuel. Alfred invested 1.5 million rubles in his brothers’ company and then actively worked on improving oil production technology. The Nobel brothers were the first to come up with idea of transporting oil through pipes with the use of steam pumps, storing it in metal tanks, and sending it overland in railway tank cars and by sea in tankers (the world’s first tanker was called the Zoroaster).
The Nobels later interested Rudolf Diesel in collaborating with them and started mass production of diesel engines for their tanker fleet. By the end of the 19th century, Branobel controlled 13% of Russian oilfields and its share of the total profit of all oil companies had reached 58%.
The brothers had strong competitors in Azerbaijan, for example, John D. Rockefeller, founder of the legendary Standard Oil company, or Baron Alphonse de Rothschild, who founded the Caspian–Black Sea Oil Industry Association and controlled 42% of oil exports.
All of this prosperity came to an end in 1918 when more than 400 private oil companies were nationalized. The new Soviet history of Azerbaijanian oil advanced after the Second World War, when development of offshore fields began in Azerbaijan.
On November 14, 1948, specialists of the Aznefterazvedka association landed on the rocky group of islets known as the Oil Rocks (Neftyanye Kamni). A drilling rig and a construction hut built on piles driven into the seabed soon appeared, and within a year, the rig hit the first oil. In 1960, an entire oilworkers’ city grew up on piles with five- to nine-story living quarters and trestles with a total length of 200 km.
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| In the Nobels’ time, oil was shipped in tanks, but in Azerbaijan today you can buy petroleum products in cola bottles. |
Offshore operations made it necessary to improve oil production equipment, and Azerbaijan became the USSR’s acknowledged leader in this field. Later on, the republic’s educational and research institutes turned out specialists and technologies for the entire Russian oil industry; and local geologists and other scientists were the first to start developing the northern oilfields. Unfortunately, development of the Russian North led to decreased investment in Azerbaijanian oil, and the collapse of the USSR caused a further decline of the industry.
The present-day growth of Baku’s oil industry is being accomplished with other investments and in other interests.
The Deep Drilling Establishment
The offshore oil derricks are easy to see from the central pier and even more so from the windows of the Hotel Absheron and from Government House and other neighboring buildings. There are dozens, perhaps hundreds of derricks stretching far out to sea, gradually disappearing in the haze.
The outskirts of Baku gradually give way to industrial zones crammed with onshore derricks. You can see a pump jack working right next to the fence around a house. The ground here is literally soaked with oil. Children play among small puddles and are reflected on the oily violet surfaces. New roads laid out with geometric precision and bustling with brand new jeeps cut through the thicket of derricks and pump jacks.
“When it all started here, we had work,” said Ali, the taxi driver who had brought us out to the industrial zone. “But they soon got rich and bought new cars or hired local drivers on the cheap and taxi drivers were out of a job.”
“They” are the foreigners who have come to Baku in huge numbers. It is said to be so profitable to work here that many foreigners stay on after their contracts expire and set up their own companies. Life in Baku is cheap and fun, and you can earn a lot more here than in the West.
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| Fish is one of Azerbaijan’s strategic products |
Foreigners don’t control the local oil reserves, however. All oil in Azerbaijan is managed by the State Oil Company of the Azerbaijan Republic (GNKAR). The company controls all oil production, manufacture of oilfield machinery, transport, geology, refining, the tanker fleet, industry construction, and institutes. It owns 6800 wells on land and 1400 offshore, an oil-tanker fleet of 300 vessels, two refineries with a capacity of 22 million tonnes per year, and six floating oil drilling rigs. GNKAR also has a 10% share in the “contract of the century,” which gives 11 Western companies the right to develop Caspian Sea oil and provides for investments of $7.4 billion.
So influential is GNKAR that its president, Natik Agaami oglu Aliev, is considered to be the only real successor to Azerbaijan’s current president, Geidar Aliev. By a strange coincidence, Natik Aliev is the son of President Geidar Aliev.
Fish, Vodka, and a Bit of Cotton
Overall, the course chosen by the government of Azerbaijan seems logical. The shortage of finances caused by the collapse of the USSR, and the war in Armenia in particular, forced the government to turn over some of its oil to foreigners. Today, Azerbaijan is following the same course as Russia did five to seven years by gradually forming an economic elite that is increasing its consumption, which should stimulate investment in other sectors of the economy.
The increase in foreign investments in GNKAR since it was formed is typical: $15 million in 1993, $546 million in 1996, $1.3 billion in 1997, and $1.6 billion in 1998. According to forecasts of Azerbaijan’s Ministry of Economy, foreign investments in 2010 should exceed $20 billion.
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| Through the efforts of the country’s president Geidar Aliev and president of GNKAR Natik Aliev, foreign currency is flowing into Azerbaijan |
However, independent analysts point to distortions in the economy caused by monopolization in some sectors. For example, in agriculture, which overall is experiencing appreciable growth, state monopolism (or monopolism of economic groups with close ties to the state) is hindering the expansion of cotton growing, wine and liquor production, and the tobacco and fishing industries (these last two sectors are dominated by European Tobacco Azerbaijan and the Caspian Fishing Co., respectively).
The example of the Chinar refrigerator factory is a good illustration. According to chief engineer Rafik Guseinov, the factory’s management used to literally hide from customers and it was impossible to fight your way to the entrance, so people sought connections in the government in order to buy a locally made refrigerator. In those days, the factory produced 380 000 refrigerators per year, at a planned capacity of 300 000 per year, and employed 3000 people. Today, it produces 10 000 refrigerators per year and employs 1500 people. This is not because there is no demand—the company controls 15% of the market—but because the factory cannot meet demand owing to a shortage of working capital. The factory’s main competitor is Stinol, but the local population can’t afford Western refrigerators. Here is an excellent opportunity for investors to enter a promising market cheaply, but, laments Rafik Guseinov, they still prefer to make quick money from oil and fish. As a result, the factory works only a few days a month.
However, both the Chinar refrigerator factory and the famous Baku air conditioner factory are now included in a privatization program. And they will likely find investors, because ultimately, both fish and foreigners need to be cooled.
by
Vladimir Gendlin and Dmitry Lebedev (photos)
All the Article in Russian as of Nov. 19, 2002
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