Azerbaijani Oil: historical review - 6

Production of modern oil-processing equipment could not be organized at once. And the loss of time meant in fact the loss of tons of oil for oil-processing enterprises. The Russian government agreed to grant the entrepreneurs the right to sell 10% of their oil on the international market in order to purchase the necessary equipment.

Azerbaijan, experiencing a high deficit of foreign currency, co-operated with Russian enterprises that were able to supply the necessary equipment without interruptions. Therefore, ‘Azermash’ (an Azerbaijani enterprise producing oil-processing equipment) was starting to lose its trade connections with 25 countries. US companies were winning the grounds, along with Japan and Sweden, who specialized in equipment production. Post-soviet states were turning away from ‘Azermash’, which used to supply them with oil-processing equipment for low prices in the framework of the Comecon’s (Council for Mutual Economic Assistance) programs. ‘Azermash’s’ supply of crude materials was cut, so it could not produce as many machines as it used to. The collapse of the Soviet Union made it necessary to develop horizontal economic ties instead of vertical ones.

Representatives of the Oil and Gas Production department came to Baku in December 1991 to sign a contract for equipment deliveries in 1992.The meeting of ‘Azermash’ administrators with their colleagues from metal-processing plants was scheduled for August 1991, but didn’t take place due to the Putsch.

 

More than 20,000 people were employed at ‘Azermash’, an enterprise that had its own construction bureau and foreign-trade company ‘Neftemash’. Its capital assets were worth 270 million rubles, while the range of its production was some 600 items. The enterprise received raw materials from Kazakhstan and Russia throughout the Soviet period. The dependence was mutual: 90% of ‘Azermash’s’ production was shipped to Soviet republics, to Russia for the most part. In some branches, ‘Azermash’ was a monopoly.

 

The ill-conceived refusal of Azerbaijan’s new democratic authorities to sign the treaty on economic co-operation in October 1991 stopped the raw-material shipments. The termination of economic relations with Soviet states could end the very existence of ‘Azermash’. But this rupture of economic relations affected both sides. Constant troubles with equipment supplies were ended by the law on de-monopolization issued by the Soviet government. Russia started its own production of oil-processing equipment.The only possible way for ‘Azermash’ to recover was to develop co-operational ties with foreign enterprises with the same specialization. However, all the negotiations aimed towards this end were interrupted by Azerbaijan’s failure to enter the international economic community. Azerbaijan’s entrepreneurs could not accept the new government’s policy of refusing to meet Azerbaijan’s former economic obligations. Sabir Yakubovich Kuliev: ‘We totally supported the independence of Azerbaijan, but the economy is a living organism. It takes time to change its ways’ (Bakinskiy Rabochiy, November 5, 1991). Russia was interested in developing its relations with ‘Azermash’, as switching over existing metalworking enterprises to producing oil-processing equipment would take time and resources, while western products were far too expensive.

Azerbaijan's oil-processing sector of metalwork production suffered from lack of resources and means, and co-operation with Russian companies could assure high quality and consistency of supply. Before the August Putsch, companies were ordered not to engage in relations of any kind with representatives of republics who didn’t sign the economic co-operation treaty in Alma-Ata. But while the politicians were trying to settle their issues, production stopped and tens of thousands of people lost their jobs. The entrepreneurs, on the other hand, were strongly interested in the continuation of economic relations. Enterprises in Siberia, which received the majority of ‘Azermash’ products, were affected first. They were ready to invest in modernization of ‘Azermash’ in exchange for uninterrupted shipments of oil-processing equipment.

 

The activity of businessmen made the authorities of Azerbaijani Republic reconsider their decisions and sign treaties on economic co-operation. The true value of these agreements was appreciated mostly by those politicians who had been in office for a long time and were aware of all aspects of the situation. One of them was Hasan Hasanov, who was Azerbaijani PM in December 1991. On the 18th of December 1991, an agreement between Russia and Azerbaijan touching upon the principles of trade and economic co-operation was signed by Hasan Hasanov  and Genadiy Burbulis, the first deputy of the Chairman of the Government of the RSFSR.

 

Ismail Agakishiyev, the head of the Center for Caucasian Studies of the Russian State University for the Humanities.