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.
The detailed analysis of the “Contract of the Century” enables to make the following conclusions. Negotiations were conducted on the basis of provisions of the presidential order On Boost of Development of Oil and Gas Deposits February 4, 1994 between the SOCAR and foreign companies AMOCO Caspian Sea Petroleum Ltd., BP Exploration (Caspian Sea) Ltd., Den Norske Stats Oleselscap A.S., LUKOIL, McDermott Azerbaijan inc., Pennsoil Caspian Corporation, Remco Hazar Energy Ltd., Turkey Petrollery A.O., Unokal Hazar Ltd., which accessed the foreign oil consortium on development of Chirag, Azeri, and Guneshli. Capacities of these deposits are estimated more than 511 million tons of oil.
80% investment necessary for development of the deposits were put on the consortium. The document contained a short plan of mutual activities. A special agreement was signed on production of early oil during 18 months, and production of oil from main deposits had to be started in 48 months. However, Azerbaijan had no oil pipeline with adequate capacity for oil transporting. It was planned to launch the main pipeline in 54 months after the start of the contract’s functioning. The republican authorities had a right to control management of deposits’ development.
In case of successful exploitation of deposits the Azerbaijani Republic should gain revenues from three sources. First of all, as a possessor of natural resources. Secondly, as a participant of investments. Thirdly, ¼ of the consortium revenues had to inflow to the budget of the republic as income tax.
On September 14, 1994, the contract project after the analysis and President’s expertise was sent to SOCAR. All provisions guaranteed 80% of various revenues gained by the “Contract of the Century.” In addition, the contract required production of associated gas with volume of 55 billion cu. m by Azerbaijan. Volumes of natural gas in the territory of the contract working were estimated in 90 billion cu. m, and Azerbaijan had the exclusive right on it.
Those times foreign companies were interested only in oil, rather than natural gas. The reason for that was difficulty of its transporting from the exploration region. Moreover, natural gas demand was less than oil demand at the international market. Later the situation has changed dramatically. Therefore, signing of such an important treaty became not only a big economic deal for Azerbaijan. It was an act which demonstrated political independence of the young republic. Mutual works on deposits were planned for 30 years.
According to the contract, oil was a subject of revenues and spending calculations. Considering inflation, it was planned to gain $157 billion in 30 years. Azerbaijan was to get $81 billion, while foreign companies - $19.5 billion. The rest of the sum had to be spent for expenses. The capital expenses considered major funds, the republic’s possessions in the oil industry. Considering this fact, real revenues of the republic had to be grosser. Gaining billions of dollars would enable to modernize economic infrastructure, reconstruct oil industry, and oil machinery, according to the authorities of the country. New working places would be established. Thus, the country would have an opportunity to accumulate experience in development of deposits situated deep in the sea. It would enable the country to produce oil independently in the future. Mutual working with well-known oil companies could play a significant role in improvement of the republic’s image which would help to establish positive conditions for foreign investment.
President Heydar Aliyev agreed with the SOCAR report and the project of treaties on development of deposits. He ordered the head of SOCAR to sign the agreement with the oil companies’ consortium. On September 16, 1994, President of the Azerbaijani Republic stated to journalists on readiness of the country’s authorities to sign the contract. Signing of the “Contract of the Century” followed several stages of difficult negotiations.
