Position of British Petroleum in Baku is shaking


Author: Orkhan Sattarov, head of European office of VK 

Recently, the Azerbaijani website 1news.az (considered to be close to the government) published a symptomatic article about British Petroleum. The title is very telling: "From the Editor: Dirty political PR, or will BP lose the status of operator in the Azerbaijani oil consortium?" The sharp tone of the article, which mentions that the British overthrew the democratic government of Prime Minister Mohammed Mossadegh in Iran, human rights violations in Latin America, as well as accusations voiced in the conduct of an anti-Azerbaijani campaign in the British media, leaves no doubt that relations between Baku and British oil companies are far from ideal. Judging from the fact that the problem has reached the media space, the parties cannot reach a compromise.

The Azeri agency reminds its readers that president Ilham Aliyev, speaking at a government meeting on the socio-economic development of Azerbaijan in the nine months of 2012, openly accused the international oil consortium led by BP of reducing oil production at the "Azeri" and "Chirag" fields in the Azerbaijani sector of the Caspian Sea. According to the president, in the last few years, because of the mistakes of the consortium, oil production from these fields has been declining, suggesting that the consortium is not fulfilling its promises for oil production. The head of state stressed that the production decline has been observed since 2008, when, according to the contract, the distribution of profit shares changed in favour of Azerbaijan to a ratio of 75 to 25. According to Aliyev, taking the theoretical price of oil as $100 (although it was often much higher) for all these years, Azerbaijan has lost about 8.1 billion dollars. The president urged the operator of the consortium BP to resolve all the issues to avoid the need to take serious measures.

"A month has passed. What do we have in the end? Promises to improve the situation, some personnel changes in the management office of BP Azerbaijan and ... a vile, obviously organized and paid-for anti-Azerbaijani campaign in the British media," 1news.az says. However, the anti-Azerbaijani campaign in the British media is only a consequence of a deeper problem. It was not these paid-for articles in British newspapers, but the decline in oil extraction at "Azeri-Chirag-Guneshli" ("ACG") that was a problem for the government. According to some analysts, with the slowdown in oil production, the Azerbaijani economy risks
 falling into the "turbulent" zone, which will last until the beginning of the export of Azerbaijani gas from the second stage of "Shahdeniz". In other words, the next four years will be accompanied by certain economic, and, consequently, political risks. Autumnal presidential and parliamentary elections fall exactly in these potentially difficult years. In short, BP, by its actions that led to financial losses and the reluctance to invest more in the development of "ACG" to enhance oil production, has understandably irritated the political establishment.

The divergence of interests of the state and the British oil company are obvious. Azerbaijan insists on investing billions of dollars in "ACG" to get the most out of oil revenues in scenario "75 to 25" in favour of the state. The British, however, know that their investments will not pay off (again, due to the "75 to 25" in favour of Azerbaijan) and refuse to invest in the project. The $8 billion mentioned by the president is hanging in the air. Unable to find an acceptable compromise, Azerbaijan and BP have started a power struggle that can already be seen in the media.

However, BP Azerbaijan has other problems. According to the Azerbaijani news agency "Turan", the tension between BP and the government of Azerbaijan is due to dissatisfaction with the UK's share in the draft of the TANAP (Trans-Anatolian pipeline) project. The Azerbaijani state oil company SOCAR is ready to provide 12% to BP and Statoil, and another 5% to Total of SOCAR's 80% share.

Previously, local and international media reported that BP wants to get in second position in TANAP after SOCAR, in particular, to obtain at least as much as in the Baku-Tbilisi-Erzurum gas project (25.5%). However, this does not suit the Azerbaijani side. In response, BP is avoiding the authorization of "Stage 2" to develop the "Shah Deniz" field, whose gas is only destined for TANAP. On the other hand, Azerbaijan wants to increase its stake in the project of the Baku-Tbilisi-Erzurum gas pipeline, which is currently 10%. Obviously, this is another contradiction between BP and the Azerbaijani government.

In such circumstances, there is already talk in Azerbaijan about the possibility of studying the "Eastern model" of development. In particular, the editors of 1news.az write: "Azerbaijan is building ever-closer ties with the countries of South-East Asia and the Pacific. "East Asian Tigers" are not new in Azerbaijan. South Korean and Japanese companies sign multi-million-dollar contracts here, for example, Baku hosts the General Assembly of the International Forum of Asian Political Parties. The recent visit of Ilham Aliyev to Singapore is also a part of the story. The list can be easily continued. It is important to note that the model of the "East Asian Tigers" can really seem attractive to Azerbaijan, both from political and economic points of view, as a more appropriate model than the "Western style" that is in deep crisis.

In addition to cooperation with Asian countries, Azerbaijan is seriously considering the possibility of replacing BP with an American company, "Exxon Mobil", Turan says, citing informed sources. Azerbaijan already has experience of working with "Exxon" - last year SOCAR bought a Swiss unit of "Exxon Mobil", which held about 140 gas stations across the country. And in February of 2012, SOCAR President Rovnag Abdullayev met with the Vice President for Europe and the Caspian region of ExxonMobile, Phillip Mulhall, in which the latter expressed the company's desire to increase investment in Azerbaijan.

It is difficult to say whether BP and Azerbaijan will be able to overcome the conflict of interests and find a solution. One thing is clear - each of the parties will make every effort to obtain the most favourable conditions, using the principle that "the end justifies the means."


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