Azerbaijani Oil: historical review - 5

1990s posed the following tasks: 1) to unite all oil production unitsThe economic strategy of the Soviet administration in the 1980s- early into single complex; 2) to allocate future investments of major oil corporations into oil-processing plant modernization to increase their efficiency by 80-85%; 3) search for possibilities to process oil in foreign plants, and not just sell crude material. Purchasing these enterprises’ shares was considered one of the ways of achieving the third goal. And this strategy, stipulating the necessity of joint activities not only aimed at oil production but also at oil processing and creating a joint infrastructure, was laid as a foundation for all future talks. However, the investors were interested only in enterprises equipped with modern machinery. The future of such enterprises was outlined by ‘Amoco’ as the following: “… If their product agrees with international standards, we will undoubtedly get them involved in our operations”. In fact, however, no suitable enterprises were functioning in Baku at the time. World oil corporations, on the other hand, weren’t interested in organizing the modernization of 14 machine building plants, producing 70% of Soviet oil-production equipment. We will relate their reasons for that later. The talks on oil field development contracts were difficult. At first, foreign companies were proposed to create joint-ventures. Later, on July the 5th 1991, a new bill on foreign investment politics, opening a whole new field of possibilities for international companies, was passed through the Supreme Soviet of USSR. The contract parties had to react to these rapid changes touching at the very foundations of the State. Another complicated economic issue touched upon the choice of a project of oil delivery to the world market. No unanimity on the geographical route of any pipeline was achieved yet. From the very beginning this question was closely connected to political issues, as ‘Amoco Production’ director-general P. D. Erly said. already obvious in November 1991, though the Russian State could have overcome the crisis. The centrifugal force in the Soviet republicsThe impossibility of future economic common space preservation was overcame existing economic necessities. Revolutionary forces standing for national independence put obstacles in the way of any new economic co-operation treaty.Constant lack of investment in the Azerbaijani oil production center since the 1950s made the situation even harder. Some 85% of state investments were allocated to enterprises in Western Siberia and the Ural and Volga Regions. So Russia, willing to even the score using its oil potential, could not objectively win first place in this field. raised, due to the financial crisis.Even if the state strategy had changed, investment could not have been On the other hand, the citizens of Azerbaijan were dissatisfied with central politics towards investment in their republic’s oil production. In the years of the collapse of the USSR, Azerbaijani oil was low-priced. For example, in the 1970s-80s half a litre of ‘Borjomi’ mineral water cost 40 kopecks, while a litre of gasoline cost 20. Of course, the people of Azerbaijan wanted to manage the oil-trade in their own more profitable fashion. And revolutionary forces speculated on that, promising that soon the income of Azerbaijan will be the same as that of Kuwait. In the years 1989-1991 oil production in Azerbaijan fell by 18% due to the lack of investment. The ‘Azerneft’ joint-venture turned into an unprofitable one (65 million rubles of dead loss in 1991 alone). Its dept was 130 million rubles. The ‘Caspromnevtegaz’ corporation was facing a similar situation. However, the official finance strategy did not change till the end of the USSR. There is an opinion that one of the reasons for the Soviet collapse was a secret pact between the USA and Saudi Arabia, stipulating a sharp oil price cut. The crisis in Azerbaijani oil production was also caused by economic destabilization and unreasonably low prices of its oil. The paradox of extremely low Azerbaijani oil prices is still unsolved: one ton of extra-quality oil from the Caspian seabed cost 34 rubles, while less expensive oil obtained from land oil fields cost 60 rubles. These prices might indicate the disinterest of the government in Azerbaijan's resources. A change in the government’s financial policies and the increase of prices for Azerbaijani oil up to 120 rubles per ton at the beginning of 1991 remained a half-measure. The authorities of the Azerbaijani Republic also activated the talks on oil agreements with foreign companies and tried to stabilize the situation in general. They introduced a contractual price for Azerbaijani extra-quality oil from November 1991. This measure raised the prices to 191 rubles per ton for seabed production and 346 for  land fields. The Republic’s government also planned to create a State Republican Oil and Gas Concern.Ismail Agakishiyev, the head of the Center for Caucasian Studies of the Russian State University for the Humanities.