Contract of the Century – a project that turned Azerbaijan into part of global economy

Baku, September 20, AZERTAC

Twenty-five years have passed since the signing of the Contract of the Century, which was written in the history of Azerbaijan in golden letters and played an important role in the fate of our people and state. The State Oil Company of the Azerbaijan Republic (SOCAR) and 11 leading oil companies of the world signed the Contract of the Century on the joint development and production sharing of the Azeri, Chirag and Gunashli oil fields on 20 September 1994 in Baku. In the ensuing years, 26 more contracts were signed with 41 oil companies representing 19 countries of the world. This event, which identified a new geo-economic map of Eurasia, became the most decisive factor in the future development and global partnership of newly independent Azerbaijan.

AZERTAC presents an article by Azerbaijani President’s Assistant for Public and Political Affairs Ali Hasanov headlined “Contract of the Century – a project that turned Azerbaijan into part of global economy”, on the historic significance of the Contract, which was signed 25 years ago.

Having gone through different hardships and obstacles, the Contract of the Century became a reality as a result of the iron will, strong determination and decisive and subsequent policy by the national leader of Azerbaijan, renowned political figure and statesman, President Heydar Aliyev. After restoring its state independence in the early 1990s, one of the main issues facing Azerbaijan was to acquire financial resources or initial capital, which was badly needed for the future development of the country. Developing the rich hydrocarbon reserves in the Caspian Sea, transporting these reserves to the world markets and spending their revenues on the outstanding needs and future social and economic growth of the country were almost the only way out at that time. However, it was not easy at all to involve the leading oil companies of the world in the production and export of the rich energy resources in Azerbaijan and overcome the obstacles in this area because of the regional confrontation and unhealthy atmosphere dominating in the Caspian and Black Sea basin and the South Caucasus in 1991-1993, as well as the chaos and anarchy within our Republic, the negligent and incompetent policy of the political forces in power and other reasons. Some analysts even believed at that time that the implementation of oil and gas projects in the Azerbaijani sector of the Caspian Sea with participation of an international consortium was just a myth and was impossible.

Following national leader Heydar Aliyev’s return to power in 1993, civil confrontation was ended, public and political stability was established in the county, the tense relations with neighboring countries were partially eased and strong state guarantee was provided for foreign investments. These and other actions diverted the attention of the biggest oil companies in the West to the Caspian and created favorable conditions for the preparation and signing of the mentioned transnational contracts. Pursing a farsighted and decisive policy, President Heydar Aliyev ruined the plans of some neighboring and international circles to disrupt the Contract of the Century by blowing up the existing problem with the status of the Caspian Sea. He wisely convinced all the unhappy sides and proved that Azerbaijan does not infringe on the economic and political interests of any country, but on the contrary, creates equal conditions of cooperation and partnership for everyone in the region.

The national leader also managed to bring as much as possible the provisions of all the oil and gas contracts, which were to be signed between foreign oil companies and Azerbaijan, closer to our national interests. Appointment of Mr Ilham Aliyev as Vice-President of SOCAR at that time was one of his wise and farsighted steps. Taking a direct part in the negotiations with foreign oil companies, Mr Ilham Aliyev made sure with a high level of competence and capability that all the oil and gas contracts for signing had been drafted within the framework of the conditions that meet the national interests of our people.

The foundation of the main export pipeline Baku-Tbilisi-Ceyhan, which was envisioned in the Contract of the Century, but was again seen by some as a myth or a “pipeline on paper”, was laid in 2002 thanks to the continuous efforts of national leader Heydar Aliyev. This pipeline, which assumes special global importance in the modern period, became an important factor in Azerbaijan’s policy of alternative energy export to the world markets.

The ceremony to inaugurate the Baku-Tbilisi-Ceyhan oil pipeline took place on 25 May 2005 with the participation of President Ilham Aliyev. Transportation of Azerbaijani oil started from the Turkish port of Ceyhan in 2006. Natural gas extracted from the Shah Deniz gas condensate field entered the system of gas pipelines of Turkey after getting over the borders of this fraternal country via the South Caucasus gas pipeline through the Baku-Tbilisi-Erzurum route in 2007.

Thus, Azerbaijan has managed not only to develop its rich oil and gas fields and produce energy resources, but also activate new export routes for their transportation to the world markets and diversify energy exports.

The key international geopolitical and geo-economic significance of the Contract was that this historic agreement laid the foundation of first international cooperation in the Caspian, alternative production and export of hydrocarbon reserves of regional countries and implementation of new transnational energy and communication projects.

The Contract of the Century earned the state of Azerbaijan and public and political and economic institutions of the country an opportunity to widely use the financial and technological resources of foreign countries. The transnational projects implemented within the framework of this Contract enhanced Azerbaijan’s geopolitical and geo-economic value in the international arena as compared to other countries of the South Caucasus and the Caspian basin and significantly affected the development and deepening of its relations of partnership with foreign countries.

Azerbaijan has obtained financial resources and state-of-the-art technology required for its future development thanks to the Contract of the Century and turned into part of the global economy.

According to initial estimates, although the extractable oil reserves in the Azeri-Chirag-Gunashli (ACG) fields were assumed to be 511 million tons, new assessments conducted at a later stage put this figure at 1,072 billion tons. About 33 billion US dollars had been invested into the development of the oil and gas reserves in these fields by 2017 and 3,2 billion barrels of oil have been produced up to now. Moreover, a total of 30 billion cubic meters of associated gas have been extracted from the ACG block and delivered to the government of Azerbaijan.

The revenues to the State Oil Fund of the Republic of Azerbaijan (SOFAZ) from the oil and gas contracts since 2001 have made up 148,3 billion US dollars. A total of 95,61 billion US dollars of this amount have been transferred to the state budget and 9,3 billion US dollars have been spent on strategic, infrastructure and social projects. The assets of the SOFAZ are currently 42,5 billion US dollars.

The huge financial resources, which have entered into Azerbaijan following the export of energy resources starting 2006, have been directed to rapid economic growth, creation of modern social, economic and cultural infrastructure, renovation of all the sectors of life in the country, diversification of the economy and the dynamic development of the non-oil sector. As a result of this, GDP in Azerbaijan has grown by 216 times and GDP per capita by 162 times over the past 25 years.

Over the past 15 years, GDP in our country has risen by 3,2 times, including non-oil GDP by 2,8 times, industrial output by 2,6 times, including non-oil industrial output by 2,2 times, and agricultural production by almost 2 times. In this period, the revenues of the state budget have grown by 13,5 times, while the strategic currency reserves of the country have increased by 28 times to exceed 45 billion US dollars. About 250 billion US dollars were invested in the country’s economy in 2003-2018 and almost half of them were foreign investments. More than 60 per cent of all the investments were made in the development of the non-oil sector.

Up to now, 4 state programs have been adopted for the development of the regions and three of them have been successfully implemented. All the fundamental problems of the regions have been resolved, modern infrastructure has been established and the level of employment among the population has been increased as part of the state programs. In all, more than 67 billion manats have been spent on the development of the regions in these years and 75 per cent of more than 2 million new jobs have been created in the regions.

Systemic actions taken in the agrarian sector, including development of individual agricultural sectors over the past two years, have increased the level of self-provision of our country with agricultural products and enhanced its export potential.

Modern transport infrastructure has been formed, 7 airports have been built for this purpose, more than 14,000 kilometers of modern roads have been constructed and the Baku International Sea Trade Port and the Baku-Tbilisi-Kars railway, which are significant contributions to the development of the foreign trade relations and expansion of the transit capabilities of our country, have been built and commissioned over these years.

Azerbaijan has become an active participant in the East-West and North-South international transport corridors and has joined China’s “One Belt One Road” initiative, which could play an important role in improving our country’s potential in the area of transit transportation.

The revenues Azerbaijan has gained from energy resources have also ensured adopting a consecutive state policy and taking and implementing revolutionary decisions to improve social protection of the population and wellbeing of people. In all, salaries have increased by 7,5 times and pensions have risen by more than 10 times in Azerbaijan over the past 15 years. The level of unemployment in the country was brought from 49 per cent down to 5,4 per cent and the level of poverty was lowered to 5 per cent. All the social infrastructure across the country has been renovated and restructured in line with the modern requirements.

The social packages approved by the President of Azerbaijan starting early 2019 have assumed purely revolutionary nature. These packages, which cover all the categories of the population and allow for a significant increase in the salaries, pensions and benefits, for 2019-2020 will require a total of additional 5,3 billion manats and will reach 4,2 million people. As a result, the minimum pension in Azerbaijan is number one in the CIS due to purchasing power and the minimum salary is second in the CIS for the same criterium.

The example of modern Azerbaijan has proven again that the Contract of the Century, which was initiated by national leader Heydar Aliyev and was signed 25 years ago, established a new oil strategy in Azerbaijan and has been successfully implemented over the past period. This strategy has ensured our country’s independent future, strategic partnership with world countries, successful results of economic growth and its leading role in the international and regional arena, giving an impetus to Azerbaijan’s position as one of the advanced countries in the world.

The Contract of the Century has increased Azerbaijan’s political and economic might, creating conditions for the implementation of numerous new transnational energy and transport projects, which would ensure energy security of the region and Europe, under its initiative and leadership in the ensuing years. It should be noted that Azerbaijan’s proven gas reserves increased to 2,6 trillion cubic meters in view of the huge Shah Deniz gas field after large gas reserves were found in Umid and Babak fields in 2010 and Absheron field in 2011. It meant that along with producing oil, Azerbaijan also has potential to turn into a major gas exporting country of the world in the near future.

It is worth remembering a fact that the discussions around several projects proposed by different European bodies in the mid-2000s, including the NABUCCO project, in the direction of the South Gas Corridor failed without producing any results and eventually the South Gas Corridor project, which was proposed by the President of Azerbaijan Ilham Aliyev and was supported by all the partners, came into being. The President of the Republic of Azerbaijan and the President of the European Commission signed the Joint Declaration on the South Gas Corridor in 2011, Azerbaijan and Turkey signed the Agreement on the TANAP project in June 2012, Albania, Italy and Greece signed the State Agreement on the TAP project in February 2013 and the Final Investment Decision on the Shahdaniz-2, which went down in history as the Contract of the 21st Century, was signed in Baku in December 2013. All the work on three segments of the South Gas Corridor, which is implemented under Azerbaijan’s leadership – Shah Deniz-2, the South Caucasus Gas Pipeline and TANAP has been accomplished over the past period and the fourth segment TAP is at the stage of finalization. We can say with certainty that the South Gas Corridor will turn into an important factor in the development of Azerbaijan’s economy in the near future, further increase our country’s geo-economic significance in the region and Europe and become a serious factor in diversification of Europe’s energy supplies and provision of its energy security. As President Ilham Aliyev said: “Azerbaijan has succeeded in redrafting the energy map of not only the region, but also Eurasia, together with its partners by pursing an active and purposeful energy diplomacy.”

SOCAR and the Azerbaijan International Operating Company (AIOC), which is operated by BP, signed the Letter of Intent on 23 December 2016 on the further development of the ACG field in the Azerbaijani sector of the Caspian Sea and by this letter, the validity of the Contract of the Century was extended until 2050. Under the new agreement, SOCAR’s share in the ACG was increased from 11,65 per cent to 25 per cent. In addition, international partner companies made a commitment to pay 3,6 billion US dollars in bonuses to the State Oil Fund of the Azerbaijan Republic.

Nowadays, the prospects of future development of any country are determined not only by the rich natural resources it has, but also by the country’s scientific, cultural and intellectual potential and, above all, human capital. That is why, Azerbaijan attaches significance not only to the revenues from natural resources, but also to the cause of turning oil capital into human capital in its development and carries out a purposeful state policy in this direction.

Ali Hasanov

Azerbaijani President’s Assistant for Public and Political Affairs

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