The Oil Road

by James Marriott

  The steps become more decrepit the higher we get, and we are wondering whether we are in the wrong building. At the top of the staircase is an open door. Entering, we find a warren of offices with high ceilings, bustling with young people writing, reading and filing. There is no receptionist, but one of the activists – who, it strikes us, are all women – points us to Arzu’s room.

  Arzu is neatly dressed in a black jersey with a silver brooch. Her sombre colours are offset by pink lipstick, and hair dyed purple and red. After welcoming us, she immediately launches into a summary of the deteriorating human rights situation across the Caucasus. She feels that in Azerbaijan the primary problem is freedom of expression, as without that freedom it is impossible to assess what is happening with other rights. Some newspapers are banned and others face punitive libel prosecutions. ‘Our journalists are particularly persecuted – intimidated, imprisoned and even killed when they write critically. Those in prison are all wonderful guys, very respectable correspondents. But not all are allowed to live.’

  ‘Two months before BTC was launched in 2005, the newspaper editor Elmar Husseinov was murdered.’ Arzu is close to tears at the memory. ‘After he was killed, a list of further targets emerged including rights activists, opposition politicians and independent writers.’ ‘Were you on the list?’ we ask. ‘Yes, unfortunately me too.’ She laughs ruefully and sighs. It seems that the state authorities are prepared to go to any lengths to silence critical voices, frequently using fabricated charges of drugs and terrorism to imprison journalists, poets and bloggers.16 With such intense pressure to remain silent, the community of those activists who continue to raise concerns is understandably small; we are scheduled to meet many of them during our days in Baku.

  ‘We have no freedom of assembly’, Arzu continues. Although the constitution guarantees this right, in practice permission is needed from the mayor for any public events. On the rare occasions when requests are approved, the restrictions and amendments – insisting on very short protests in outlying suburbs – make the gathering pointless.

  ‘So sometimes we and others organise non-sanctioned pickets. But this is very dangerous and risky. Large numbers of riot police appear immediately, with their sticks ready. Frequently, they will just begin to beat people cruelly, without saying anything or asking questions.’ Arzu and her friends try to grab back people who have been arrested, but usually fail. When in 2003 Ilham Aliyev was made president following the fraudulent election, protests led to over 1,000 arrests and many people being tortured.

  In a situation where any type of public dissent is rapidly quashed, trade union rights have suffered. Many have not received formal recognition, with the government, oil companies and subcontractors creating various obstacles to union activities.17 Arzu recounts numerous stories of people losing their jobs for even daring to mention unionisation.

  She agrees with our research that repression and the centralisation of authority under both Aliyevs have allowed the oil companies to operate in a highly profitable environment. The lack of autonomous state institutions asserting a different perspective from that of the president is seen as a blessing. The concentration of power has meant that the corporations have felt little need to be accountable to diverse government departments, nor to consider that there is any opposition to the Aliyevs.18 In an extraordinary twist of language, a business think tank described how, in Azerbaijan, ‘oil projects sidestep many potential administrative pitfalls and delays . . . Environmental and labour laws, for example, can prove elastic.’19 Arzu points out that the benefits flow both ways. BP and the other corporations played a crucial role in enabling Aliyev’s regime to strengthen its grip over Azeri society, achieving what the companies describe as ‘stability’. We discuss how oil revenues can entrench a stagnant political system, for the elite can draw its wealth from resources rather than citizens’ taxes, and thus remain deaf to calls for reform. By setting the rules of the game for oil contracts, the Azeri elite – much of which ruled in the Soviet era – captured the active support of foreign investors in concentrating their power. Each contract signed helped entrench Aliyev further.20 Arzu adds, ‘From my side, I can say that BP doesn’t do anything for human rights. Especially as BP is a great cooperator with our regime, I am dissatisfied; they are not helping us build our democracy. It’s great that they train some journalists to write articles professionally – but this is minor compared to their support for the repression.’

  As we get ready to leave, wondering how Arzu manages to continue in the face of such an entrenched system, she says goodbye with a last thought: ‘You see, Europe, the US and the companies wanted more oil. Heydar Aliyev offered to give them control over our oil and its export route, and in return got unlimited rights to rule this country as he wanted. We’re living under a dictatorship, but do you see criticism from Britain or the US? Barely a whisper. We ask them not to sell our democracy for oil. But do you think they’re listening?’

  CASPIAN PLAZA, CәFәR CABBARLI KUÇ, BAKU, AZERBAIJAN

  We leave the pre–World War I Outer Town, heading towards the Caspian Plaza. This tower, like the offices of SOFAZ, has been constructed within the last ten years, and is a similar monument in glass and steel to Baku’s new identity. On the ground floor, a stationery shop sells Moleskine diaries next door to a travel agent promoting business-class seats to London, İstanbul and Moscow. In the offices above, consultants rub shoulders with firms of foreign architects and an assortment of NGOs.

  While Arzu gave us an overview of the importance of oil and BP in the Azeri body politic, we have come here to understand the economic context better, by meeting a researcher working for a non-profit organisation focused on tracking government revenues. Emil Omerov is of the younger generation that was educated after the collapse of the Soviet Union. His training is capitalist, not Marxist. Lean, excitable and energetic, he says with a laugh: ‘Did you see our big policemen on the streets, with their long sticks? They take up six per cent of our national budget. Six per cent! Then a further 10 to 15 per cent goes to the army. You can see where the president gets his iron gloves.’ He explains that lower oil prices will cause the budget to fall by 8.8 per cent in the coming year. Yet, somehow, all the resulting cutbacks are to be passed on to the social services, agriculture and transport, while the police and army will get another 5 per cent raise.21 Meanwhile, an ever larger share of the SOFAZ money is being transferred into the state budget. We learn that this flow of finance began in 2004, shortly after Ilham Aliyev succeeded his father, and has since increased rapidly: one billion, two billion, now five billion dollars. Forty per cent of this money – meant for future generations – is pumped into construction. ‘One bridge alone cost a billion dollars – more than our entire national budget in 2002.’ The budget cuts due to the global recession have put a hold on new construction, but there are still around 1,000 unfinished projects waiting to be completed. Apparently, tracking economic impacts is difficult as you cannot rely on official government figures. ‘They claim that the global crisis hasn’t affected us, and that 700,000 new jobs were opened this year. But this is bullshit. So many people have lost their jobs and become unemployed.’

  Ilham Aliyev has announced that the state is diversifying the economy and moving away from oil. Yet Azerbaijan’s dependence on crude and petrol-related exports is only increasing. By 2008, 97 per cent of all exports were oil-related. The remaining 3 per cent were agricultural – ‘our cucumbers and tomatoes!’ Emil jokes. Other sectors that have grown, such as hotels or oil-pipe manufacturers, are all highly dependent on the oil industry.

  Massive sales of crude by any state tend to push up the local currency, undermining the competitiveness of other exports. This process, whereby a national currency appreciates due to the export of natural resources, is called ‘Dutch Disease’, and is one of the reasons that oil-rich economies tend to become more, rather than less, dependent on oil over time. In 2005 the Economist reported that ‘Dutch Disease has already struck’
in Baku.22 The SOFAZ oil fund created in 1999 had been intended to help ward off this problem, but spending the money on a construction boom does exactly the opposite – it stimulates short-term inflation.

  Our interview concludes with Emil telling us that the first oil boom, in the late nineteenth century, created a couple of Azeri and Russian millionaires who built beautiful mansions, while generally it didn’t benefit people that much. Then during the second oil boom, in the 1930s and ’40s, Azeri crude fuelled four out of five tanks that defeated the Nazis. But again, people didn’t benefit locally, in terms of development. More recently, we were promised that Baku would become the Dubai of the Caucasus. And the construction boom gave people optimism for the future – after all, Dubai has many skyscrapers. But now, when people hear that the oil production will peak next year, they ask where the benefits have gone. On the streets, you can see fancy cars. Cars made in German factories in Bavaria will be seen here before they are seen in Munich. But it is only a small part of our society that is living in luxury, while many remain in poverty.

  Binәgәdi, Baku, Azerbaijan

  There is an air of sullen dustiness on the bus that takes us north-east from the Caspian Plaza along Azadliq Prospekti – Freedom Avenue, one of the great arteries of Baku – towards the tower blocks of the Late Soviet city. We are in search of the legendary Billion Dollar Bridge that everyone in Baku is talking about. Stepping off the bus with commuters heading home in the evening, we look around for a spectacular homage to the new Azerbaijan; instead, we see a grey overpass. It has lots of cars on it, and it is pretty large, yet far from monumental. Unsure if we have come to the right place, we ask around, and end up visiting another new overpass nearby, which is still under construction. It looks pretty similar, but is this really what they were talking about?

  On reflection we realise that expecting something else was wrong-headed. The bridge was intended merely to ease congestion, not as a major city landmark. This piece of infrastructure began to gain its notoriety and name as the Billion Dollar Bridge only after it had been completed and its true cost became known. Budget inflation for construction projects seems to be the norm. We have been told of a road to the airport that cost $20 million per kilometre, and classrooms built for $70,000 that should have cost $10,000.23

  It is not just bad project management that is at fault. Purposeful price inflation enables someone to cream off the difference between the bid price and the actual cost, and divert public funds to private bank accounts. Setting up various front companies that do actually deliver the promised building – albeit late and with poor materials – has become the Azerbaijani elite’s preferred way of enriching itself, and has helped drive the massive construction boom.

  As we wait for a bus, we remember a Soviet joke that a friend shared. ‘The Romanian minister of transport visits his counterpart in Russia. He is surprised to see the luxurious house and his rich lifestyle, much more than one would expect for a party member of his rank.

  ‘How do you manage?’ he asks.

  The Russian minister takes him to the window and asks:

  ‘Do you see that bridge over there?’

  ‘Yes.’

  ‘Well, that bridge cost 100 million roubles. And from such a large sum a little bit comes my way . . .’

  A few years later the Russian minister returns the visit. The Romanian minister has an even more lavish lifestyle. The Russian asks:

  ‘How do you manage?’

  ‘You see that bridge over there?’

  ‘What bridge?’

  ‘Well, that bridge too cost 100 million lei.’

  Azerbaijan is saturated with corruption at all levels. Police extortion of motorists for nonexistent traffic offences is routine. When we travel in private cars, we are repeatedly pulled over and asked to pay. Criticising these traffic charges is politically acceptable in Azerbaijan, and the search for a remedy has received international attention. According to the World Bank, 32 per cent of companies believe that, to get anything done at state level, you need to pay a bribe.24

  But documenting major corruption and the murky construction deals happening in this ‘boom city’ is much more dangerous. Evidence implicating the president is especially taboo. Arzu had warned us that those who discover such cases soon end up in the notorious Bayil Prison.

  Rumours of corruption over the major oil contracts abound. Almost everybody we speak to – who doesn’t work for BP or the government – feels that the company would not have been allowed to drill without paying bribes. BP, needless to say, denies that its activities in Azerbaijan involved any wrongdoing – although what constitutes corruption is apparently a matter of definition. Rondo Fehlberg, BP’s chief negotiator in the early 1990s, explained that to call something ‘bribery’ was a Western oversimplification:

  It’s more complex than that. In their culture, with the old Middle Eastern customs that include friendship and baksheesh with a veneer of communism, there is a mix that is difficult to understand. But their culture has a clear morality to it. For me to be befriended by a senior minister and have him work for me and bust his tail to make it happen, in their culture he is entitled to something.25

  Exactly why a senior minister of the Azerbaijan government was busting his tail for BP – and in what capacity – remains unclear.

  More above-board, all the oil contracts between 1992 and 1994 involved legal ‘signing bonuses’ amounting to $390 million.26 Rumours circulate about parallel demands for illicit payments running into the hundreds of millions of dollars.27

  As we trundle back into town, we try and unpick what we have seen. Some of the income from the oil extracted by BP comes to the Azeri state at SOFAZ. However, under the direction of the president much of this is not invested abroad, as is advised, but used to fund current government spending, including construction projects. The Azeri elite owns the companies that carry out these projects, and through price inflation they acquire huge personal wealth, much of which they invest abroad – buying mansions in London, for example. So, even if BP and the other foreign oil companies did not participate in any bribery themselves, they are big players in an environment where much, if not most, of the income from oil is being siphoned off by those in power.

  A journalist and long-term oppositionist, Zardusht Alizadeh, had described to us several years earlier how the Aliyevs, father and son, had recreated the same type of regime of control, relying on clan corruption, that had existed in the non-Russian Soviet republics through the 1970s – ‘the oil mafia’ and ‘the caviar mafia’ that Heydar Aliyev was accused of being involved in. In this ‘clan model’, around the president sit a group of ten to twenty people. Each of these has a circle of ten, who in turn is surrounded by a further ten. Most of these are either individuals from Heydar Aliyev’s native Naxçivan region or former colleagues from the KGB.

  But challenging the poor governance and corruption in today’s Baku in isolation, as powerful outside agencies such as the World Bank and British Embassy do, is akin to examining Heydar Aliyev’s embezzlement of public resources in the 1970s without a critique of the consequences of Soviet power.28 What we are witnessing in Baku is its transformation into a resource colony for Western energy demands and a profit centre for oil companies, at the expense of the Azeri people’s future. This is also corruption – the corruption of state power.

  3 THEY ALONE CAN LIGHT FOR US THE ROAD TO THE PROMISED LAND

  SUMQAYIT, BAKU, AZERBAIJAN

  Thirty Years Ago

  The Caspian

  Still looks as heavy

  as molten lead,

  but now we’ve planted

  oil trees

  in wells at the bottom of the sea.

  The barren place called Sumqayit

  with its bone-dry earth

  hadn’t become a green city

  with factories and a hundred thousand people.

  Poetry was found in Azerbaijan,

  but not Samet’s.

  The moon was up th
ere,

  but all alone –

  no little brother yet.

  Nazim Hikmet, October 1957, Moscow–Baku1

  If only Sumqayit had remained the ‘green city’ described by the Turkish poet Nazim Hikmet. Lying nearly twenty kilometres north of Baku, beyond Binәgәdi, is the city that was famous for gazovka – the smog that hung above it and suffused everything and everyone. Sumqayit, with its petrochemical pollution levels and the appalling conditions in which its population of 250,000 lived, has become a byword for Soviet environmental destruction.

  Decades of poor regulation allowed thirty-two chemical and metal plants to spew out 120,000 tonnes of waste annually.2 Poisonous materials, including DDT and lindane, were manufactured and exported, but not before their by-products had been released into the air, soil and water.3 Local residents complained that the smell was so bad it could wake you up. ‘The pollution enters your brain, it makes you want to throw up. You can’t focus or do anything.’ There were countless stories of deaths from cancer, and reports of children born with abnormal bodies. Infant mortality rates in Sumqayit were immense, at three times the Soviet average, borne out by the city’s large dedicated children’s cemetery. In an echo of filmmaker Andrei Tarkovsky’s masterpiece Stalker, one Moscow documentary-maker called Sumqayit ‘the dead zone’.

  Sixty years previously, Sumqayit had been a small fishing village on the northern shore of the Absheron Peninsula. In 1935, the people’s commissar of heavy industry for the USSR, a Georgian named Sergo Orjonikidze, was promoting the diversification of the oil industry in Baku. He selected the place as a site for petrochemical plants. At this ‘barren place’, as Hikmet wrote, a new industrial city was to be built, with its promise of modernity.