History of the Baku Oil Industry. Part 52

After the discovery of oil fields, Baku became a special place, where various economic and political interests of international coalitions, industrial clans and leaders were concentrated and clashed. VK begins publishing chapters from the book by Ismail Agakishiev "History of the Baku Oil Industry and the Second Oil Boom (second half of the 19th century - beginning of the 20thcentury)" The book presents a historical analysis of the emergence and current state of the Azerbaijani oil industry.

However, it should be noted that the employment of even tens of thousands of workers in the high-paying oil industry has created a great imbalance in the economy in general. While the oil sector was rather successful, other sectors, especially agriculture, were marked by stagnation and increased unemployment, which caused tremendous emigration from the republic.

Life abroad, sometimes without rights and separation from the motherland, is the tragedy of the majority of Azerbaijanis. All this became the result of the collapse of the Soviet Union that led to the destruction of the general economic infrastructure. The "Contract of the Century" is a big responsibility and an invaluable opportunity for an effective leadership to create an effective economic infrastructure in the republic, as well as a solution to the unemployment problem. It is possible under a competent and responsible conduct of systematic work. The will of top management and organization of a professional team are the most important factors in this process. Monopoly in the economy should be given up and corruption should be reduced to a minimum. In fact, without addressing these issues, it is impossible to ensure the formation of a competitive economic infrastructure, without which the rapid development and strengthening of the power of political elites is impossible.

The "Contract of the Century", signed on the basis of the "product-sharing" principle, was supported by three economic pillars: investment, production sharing and taxes. The republic of Azerbaijan retained the ownership of oil and gas from the fields and did not invest in their development, since SOCAR invested about 10% of the total cost and the investors - 90%. Under the contract, the revenue was originally aimed at reimbursing the expenses. After the payment of all expenses, from 60 to 70% of the extracted hydrocarbons stay in Azerbaijan, while the remaining oil becomes the taxed property of foreign companies. All the international companies are exempt from all taxes except income tax.

SOCAR pays 25% taxes from the profits of each company. Companies had to declare to the tax inspectorate that they pay 25% of their profits. The contract did not and could not have any precise numbers about the capital investments and operational expenses. The approximate sum of the planned capital investments, stated in the contract, was 7.5 billion dollars. According to the calculation of the Azerbaijani International Operational Company, by March 1997 this sum had increased to 8 billion dollars and another 8 billion should go towards operational expenses. This means that in the 30 years of the functioning of the contract this sum of expenses would be at least 16 billion dollars. Azerbaijan was planning to restore its economy with its oil reserves and to overcome the crisis. According to the prognosis of the Gubkin State Oil and Gas Academy, the Institute of Oil and Gas Problems and the Russian Academy of Science, the oil reserves in the Azerbaijani sector of the Caspian Sea exceed 4 billion tons.
 
Western companies, particularly American ones, were actively working in the Azerbaijani sector of the Caspian Sea. The role of the US was decisive, due to the political possibilities of the state, combined with the technological and financial capacities of the oil corporations. American oil giants, using the support of their state, pushed away their competitors. The Azerbaijani government, taking into account the severe economic crisis in the country, the war in Armenia and the growing tensions on the Caucasus (wars in Chechnya, South Ossetia and Abkhazia), had to accept the offers from the US and the UK. The American company Exxon, which was one of the world leaders in oil extraction and production, wanted to join the contract. The first meeting of Heydar Aliyev and the leaders of the company took place before signing the contract, during his first visit to New York. This visit coincided with big terrorist acts in Baku that killed the head of presidential security, Shamsi Ragimov, and the deputy president of the parliament, Afetdin Djalilov. In his speech to the UN, Aliyev protested against the occupation of Karabakh and called for cooperation in the oil sector. The problem of financing the Azerbaijani share was solved by attracting other foreign companies – Lukoil, Agip, Exxon and Grunwald&Co.

The president of Exxon wanted to cooperate in the Azerbaijani sector of the Caspian Sea. However, since the status of the sea was not properly defined, the company had to work very carefully. After signing the contract, global interest in Azerbaijani oil grew and the big corporations were competing to join the contract. Therefore Exxon asked the US authorities for support.