The contract was designed for 30 years. The first stage set immediate goals: the foreign companies had to modernize the Chirag-1 platform within 18 months. This platform was to become the foothold for the extraction of the first oil. During the second stage, it was necessary to accomplish the transition to full-scale production of oil in all the fields. The construction and commissioning of the first platform and oil well was expected to be completed in 48 months. The third stage provided that 54 months after the ratification of the contract the delivery of crude oil via the main pipeline was to be launched.
A managing committee was being created for supervising work on objects. This committee was to include 10 people from each company participating in the contract. The chairman of the committee on terms of the contract was appointed by the republic of Azerbaijan. The secretary was appointed by the contractor from his personal staff and members of the managing committee.
In discussions, the head of the managing committee of SOCAR and the contractor were to have equal votes. Under the terms of the contract, the foreign companies could sell the Republic of Azerbaijan 10% of their shares to meet the needs the republic. SOCAR also had the right to buy at the point of delivery 10% of the crude oil owned by contractors.
The issue of bonuses, which caused great interest among the population, was clearly discussed in the contract. The contract specified the precise amount of bonuses, as well as the stages of their transfer to the state institutions of Azerbaijan. The total amount of bonuses under the contract amounted to $300 million. This sum was to be paid in three installments: 50% in the course of 30 days after the ratifications of the contract, 25% after reaching an average daily production of up to 40,000 barrels and 25% after the launching of the main exporting pipeline.
The contract also provided clear conditions for payments of expenses. They were supposed to take place based on a quarterly schedule. Operating expenses were to be paid first from the total production, next the capital costs not exceeding 50% of the total production were to be paid. Unpaid charges were to be transferred to the next stage, otherwise the amount increased by 4%. The shares were distributed after the payment of capital and operating costs based on an agreed scale.
Analysis of the contract leads to the following conclusions: Major capital expenses amount to $ 7.5 billion (based on the prices from 1993). If we exclude unprofitable years, the oil production amounts to 504 million tons of oil, while operating expenses amount to $5.8 billion at a price of $33 per ton of oil. 49.7% of the total profit belongs to Azerbaijan and 12.8% is the share of foreign companies. The associated gas becomes the property of the republic.
The revenue of the oil is divided in the following way: 80% goes to Azerbaijan and 20 % - to the contractor. Excluding inflation, the internal rate of earnings during operation reaches 24%. Legal relations are governed by the laws of Azerbaijan. In the absence of general principles, disputed issues are regulated under the laws of the District of Alberta in Canada. In case of violation of economic rights of the parties the damage is compensated by appendices to the contract or by payment of losses for damage caused.
Under the agreement the contractor is entitled to transferring all its share or its part to joint ventures (enterprises, in which he has a joint share). If a contractor wants to transfer its share to a third party, he is required to obtain the consent of SOCAR.
The study of the expected benefits from the contract once again proves the fact that it was providing Azerbaijan with oil revenues that it had never had before. The expected tens of billions of dollars were planned to be invested in the oil and petrochemical industry.
Besides direct benefits, the contract also provided indirect benefits, such as:
1. Increasing the level of creditworthiness of Azerbaijan on the international market.
2. Greater investment opportunities appeared in industries related to the oil sector (as the world practice shows, the volume of these investments is greater than the volume of finances invested directly in the oil sector).
3. Foreign exchange reserves of Azerbaijan were formed, which allowed the government to conduct an independent investment and economic policy.
4. Accelerated ascension of Azerbaijan in the world economic union and other general integration processes.
5. The level of engineering and technology increased, advanced sectors of the economy would be reconstructed and modernized in the future, high-quality products able to compete on the global market would be produced.
6. The most important is the opportunity to create new jobs in the oil sector, which would lead to a dramatic improvement of workers' skills.
