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 Agakishiyev "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.
In 1994 Roskaspneft was created by Rosneft, LUKOIL and the Astrakhan ship-building plant Krasnye Barrikady. The first drilling platform was to be built on the Dagestani shelf. The technological and economic basis of this project was prepared by the British company SP Kenik, that won the tender for the development of this deposit with Roskaspneft and established the joint enterprise Casp Oil Development. 3 The created company meant the start of the free action of the Caspian countries on the sea. Political scientist V. Razuvayev wrote: “State institutions, including the Ministry of Foreign Affairs, still think that they themselves can determine the country’s policy in the oil question. The degree of the oil-industrialists’ influence is connected to the traditionally low position of the branch in our politics.” 4
In 1994 this profitable branch was getting only about 10% from the price of the exported oil. The financial problems hindered cooperation between the post-Soviet countries. Russia and Kazakhstan did not fulfil their responsibilities on mutual supply. In 1991-1994 non-payment was a common thing.
Thus, the debt of Kazakhstan for fuel and energy reached 669.7 billion rubles by January 1st 1995 and 6.81 billion for oil products. Russian consumers had a similar debt to their providers in Kazakhstan. The problem was so huge that the states had to regulate the terms and rules of paying the debts for the mutual responsibilities of the enterprises.
The Russian and Kazakh Ministries of Energy and Fuel were almost not involved in the regulation of this process, they did not use the mechanisms that could facilitate the process of mutual accounts. 1
Russia needed to cooperate with the foreign companies, because at that moment Russian plants had neither the technologies, nor the financial capacities. The investors needed a law about the sharing of production. The long-awaited decree “On the primary measures to improve the activity of the oil companies”, signed on April 1st 1995, became an important factor in strengthening the oil industry. 2 As Leoni Fedum, vice-president of LUKOIL pointed out, “the presidential decree, on the basis of which the first oil companies were created, looked like a compromise, as it was prepared in the middle of 1992 when our society had a different psychology. Decree no 327 completed the formation of the political basis for the privatization of the Russian oil complex.” 3
The main innovation was that the companies became the basis of the oil complex.
In fact, the oil companies became the main actors in the oil and gas sector. As noted by Alekperov, “the decree allowed companies formed before 1992 to create a really vertical structure.” 1
The decree also allowed Lukoil to absorb companies that were previously not parts of the company, for instance the Caspian oil plants. In connection to this decree, LUKOIL decided to have unified company shares.
From early 1995 the company changed to a new consolidated structure of management. This meant the elimination of multi-governance on the level of the enterprises and the creation of a centralized structure capable of managing all the economic problems. It allowed for a reduction in the numbers of managers and for them to focus their activity on the main strategic and financial questions. 2
In September 1993 SOCAR and LUKOIL signed an agreement on the main principles of cooperation, including joint exploration and development of deposits in Azerbaijan. 3 In 1993, after an intergovernmental agreement, SOCAR gave 10% of the 30% of its share in the Azeri and Chirag consortium to LUKOIL. From the Russian side the agreement was signed by the Ministry of Energy and Fuel, Yuri Shafranik. 4
The “Contract of the Century” was signed by the representative of the Ministry of Energy and Fuel, S. Pugach, and the project was recognized on the governmental level. 5 The first tasks of LUKOIL, as it was written in its authorization documents, was to meet the demands of its shareholders, and the state was the most important of them. The overall LUKOIL investment sum in this contract was 800 million dollars. But they had to be paid back with the first ton of oil. Half of the income went to the state in the form of taxes and the profit from its share in the company. 6
According to this contract, LUKOIL was also engaged in other activity through the Azeri-LUKOIL company, created by SOCAR and LUKOIL, and the Trade House LUKOIL. SOCAR also negotiated with Pennsoil, AGIP and the LUKOIL group about the exploration and further development of one of the most promising deposits in the Caspian Sea.
Oil companies in Russia were positive about cooperation with foreign companies. The director of one of Rosneft's departments, I. Chernov, wrote: “It is necessary to fully evaluate the activity of LUKOIL that, together with numerous foreign companies, took part in the creation of the oil consortium. We are positive about the decision of LUKOIL, and it will be better if other Russian companies joined the project.” 2 In the words of Chernov, “Azerbaijan is already developing the oil, Kazakhstan will soon follow its example. In 20 years they will be pumping oil while we will continue our useless arguments.”
