Sabit picks up the narrative, describing how negotiations accelerated after the now-nationalist Popular Front came to power in June 1992. Mutalibov had been ousted in a coup led by the Azeri ‘Grey Wolves’, which took control of the parliament and the state radio and television building. Three months later Abulfaz Elchibey of the Popular Front was elected president. Sabit himself became the new head of SOCAR, due to his role in the Popular Front and his understanding of the oil sector, having worked as an engineer for a machinery company.
With the new government in place, BP needed to make moves to outstrip its commercial rivals. In July 1992 Sir David Simon, the new CEO, met Prime Minister John Major to ask for British government support. With more oil companies beginning to muscle in on Baku’s oil wealth, BP was worried about being pushed out. An important strategy involved visibly aligning the company with the British government. Although Britain had established diplomatic relations with Azerbaijan, there was at this point no British embassy in Baku, with most matters being dealt with via Moscow. With spare space in its newly acquired downtown offices, BP partitioned off an area to be used by British government representatives, and raised a British diplomatic flag outside. Although BP was then a private company, Browne claimed that it ‘was essential for us to be closely aligned with the UK government, as post-Soviet countries still found it easier to understand and accept government-to-government dealings’.37
Sabit is clearly proud of the role he played in SOCAR, but seems impatient with our questions, spinning his glasses on the red felt tablecloth, until we ask whether he was in office when Margaret Thatcher came to town in September 1992. His eyes light up, and he becomes animated. ‘Yes, I met her. I even have a picture with her. But I won’t show it to you. I was informed by the BP representative in Baku about her visit. Then I informed President Elchibey.’ Thatcher was being brought in to witness the signing of a memorandum of understanding between SOCAR and BP on the Chirag oil and Shah Deniz gas field.
Thatcher’s brief visit was the first by such a senior Western politician to Baku. Twenty years later it is hard to appreciate how much this meant to the young Azeri government. No matter that she had resigned as prime minister nearly two years previously and was no longer even a member of parliament. The British Foreign Office had proposed that the then trade minister, Michael Heseltine, should attend the signing ceremony, but the Azeris were unimpressed. Thatcher, however, was a different proposition. Browne later explained that in order to get President Elchibey to favour BP over other companies, BP invited Margaret Thatcher. ‘Fiercely anti-communist, she was delighted to be asked.’38 Browne’s advisor Nick Butler was sent to accompany her on a flight from Hong Kong to Azerbaijan, and as they approached Baku she told him ‘in straightforward terms that if [the Azeris] weren’t ready to sign [the deal] she wouldn’t leave [Baku]’.39
As Thatcher handed Elchibey two cheques totalling $30 million, Browne achieved his aim, impressing the Azeris such as Sabit and thereby sealing the first contract.40 An FCO internal memo two weeks later titled ‘The Baroness in Baku’ celebrated the trip as a success: ‘BP has done very well in securing exclusive rights . . . Our efforts in organizing Lady Thatcher’s visit at such short notice were clearly worthwhile – with proper programming/targeting Lady Thatcher clearly remains a formidable foreign policy weapon for UK Ltd!’41
The letter describes how President Elchibey not only admired Thatcher, ‘but seems something of a groupie! From what she told me of their private talk they spent most of the time talking about freedom and the fight against communism.’ Thatcher promised numerous scholarships to Britain, and support in regaining national treasures from Moscow – causing her British diplomatic escort some embarrassment. The memo concludes, with names redacted, ‘When she was in full flood I whispered to BLANK that BLANK could hardly have made the point better. He kindly offered me £5.00 if I would repeat this comment to Lady Thatcher afterwards.’42
This initial contract was not published at the time, nor were its details ever released, apart from a $30 million payment by BP to an Azeri government then at the height of its war with Armenia. Thus we are more than a little surprised when Sabit adds proudly: ‘As president of SOCAR, I signed the Memorandum. John Browne signed it for BP. I kept it in case I’d need to refer to it in the future. The pdf is on my computer. You can see it, but I won’t give it to you, as I might publish it in a book sometime.’
To our eager nods, Sabit passes his laptop across the table. And there it is: BP and Statoil’s first contract with Azerbaijan. Mika skim-reads it quickly, trying to memorise as much as possible. A four-page memorandum, it details initial development plans, a promise to construct an export pipeline, and the companies’ exclusive right to negotiate future contracts. Just above the signatures, it reads: ‘In the British tradition of supporting development of democracy and as appreciation of the recent democratic achievement of the Government of Azerbaijan’, BP ‘will pay $90 million’ to the Azeri government. So it seems that the $30 million cheque was just an initial payment.
Sabit explains that, with the Popular Front leadership desperate to bring in foreign companies, signing a major contract like this was his main priority at SOCAR. The war was devastating the Azeri budget, and contract ‘bonuses’ were seen as a key source of quick income, while deals with foreign oil companies were a means of building strategic alliances. Across the former Soviet Union, budget problems, instability and high inflation were causing non-payment of wages and pensions, which in turn fuelled political unrest. Developing the giant offshore fields at speed looked to require significant capital and technology not available locally.
Sabit, however, does not draw conclusions about the oil corporations’ use of their negotiating strengths and the tactics employed by Browne. From November 1990 until Thatcher’s visit two years later, Azeri governments tried to settle on a contract with a foreign company that would not be biased in the company’s favour. But three months into the Elchibey presidency, the war, the collapse of the Soviet Union, and perhaps that extra British diplomatic pressure meant that, as the FCO internal memo noted, ‘By any normal commercial standards BP has done very well in securing exclusive rights.’43
It was a perfect illustration of the use of the British foreign policy machinery by a private oil corporation – echoing Shell and General Thompson’s close cooperation in 1919. Notes of a 1993 meeting between Foreign Secretary Douglas Hurd and BP directors sum up the relationship neatly: ‘[Hurd] emphasised that there were some parts of the world, such as Azerbaijan and Colombia, where the most important British interest was BP’s operation. In those countries he was keen to ensure that our efforts intertwined effectively with BP’s.’44 With Thatcher’s visit, a ‘British’ company had beaten the American oil companies to it, just as it had back in 1919.
But BP’s lead position was not as secure as it seemed. Amoco still had some hold on the Azeri field and, after a year of pushing, the Americans made headway with their demand for ‘unitising’ the offshore fields. In May 1993 SOCAR, under Sabit, demanded that the Azeri, Chirag and Gunashli fields should be considered as one unit – called ACG. Deals pending for the three distinct areas held by BP, Amoco and Pennzoil were to be subsumed under a new arrangement for a single field. Now the struggle would be over who held the largest percentage share.
On 11 June Elchibey initialled a deal to develop ACG with the consortium of BP, Statoil, Amoco, TPAO, Unocal, McDermott and Pennzoil. He also agreed a ‘signing bonus’ of $210 million, with an initial payment of $70 million to be transferred before the official ceremony scheduled to be held in London on 30 June. On behalf of the Azeri state, SOCAR received a 30 per cent share in ACG – substantially worse than the 50/50 split that had been proposed in the bid for the Azeri field submitted by BP in March 1991, over two years before.
But the process was still not over. As Sabit explains, ‘Just as we were coming very close to signing the final contract and Elchibey was to travel to London, there was a new
coup. The Popular Front was overthrown. Heydar Aliyev became the new leader of the country and suspended the negotiation process.’
An armed uprising in Gәncә, Azerbaijan’s second city, had given Heydar Aliyev the opportunity he needed. This, according to official government rhetoric, is when Aliyev ‘saved the nation’; the date is celebrated with an annual public holiday: Salvation Day. In the space of ten days, he faced down the rebellion in Gәncә, was elected speaker of parliament, and awarded himself ‘extraordinary powers’ over Azerbaijan.45 As Browne later wrote, ‘I was in Baku at the time and events were dramatic . . . Troops were within a few miles of Baku at one point.’46 As the threat of conflict loomed, Browne and other oil executives fled to Turkey, and then agonised as to whether to pay the planned initial ‘signing bonus’. Desperate to ensure the contract was signed, they did so, even though they did not know who would get the money. But Aliyev cancelled the contract and scrapped the ceremony. The $70 million were never seen again.47
Browne described how Aliyev’s coup made him even more focused on winning the prize. ‘The risks of investing in Azerbaijan were clear. But so too was the size of the prize. If there was going to be a deal, BP had to be the participant with the largest share.’48 The Sunday Times, apparently relying on a Turkish secret service report, even went so far as to allege that BP had backed the coup. ‘As a result of our intelligence efforts, it has been understood that two petrol giants, BP and Amoco, British and American respectively . . . are behind the coup d’état carried out against Elchibey in 1993.’ A Turkish agent apparently described how he had met with BP executives to discuss an ‘arms-for-oil’ deal. He said the company had contact with intermediaries who arranged for the supply of arms to Heydar Aliyev.49 But the story did not stand up – BP denied any involvement, and the article was removed from the Sunday Times website.
Following the coup and the cancelling of the deal with Elchibey, negotiations resumed between the companies and the state. The Azeri team had changed. As Sabit recalls, ‘I resigned as the head of SOCAR, as I didn’t think I could work under Heydar. After bringing in some European consultants at first, he took a closer grip on the issue himself and appointed his son Ilham as the vice-president of SOCAR.’
The oil companies were concerned that Heydar Aliyev would be loyal to his Soviet roots. But they soon recognised in him a skilful and wily politician who brought the ‘stability’ they desired.50 After three years of negotiating amid an array of different social forces – the president, political parties, SOCAR officials and popular movements – it suited Western business to have one concentrated centre of power with whom to deal: Heydar Aliyev. A ‘one-stop shop’ had been established.
Aliyev’s priority, like Elchibey’s, was to bind Azerbaijan into a web of political alliances that could ensure its independence and bring about an end to the war with Armenia, using the ACG contract and foreign visits to bolster this position. In February 1994, BP pressure helped ensure that he was in the UK meeting Prime Minister John Major and Foreign Secretary Douglas Hurd, and signing a ‘declaration on friendship and cooperation’ between Azerbaijan and Great Britain.51
By early 1994 the oil companies had consolidated their forces, and were negotiating in unison across the table from Heydar’s son Ilham Aliyev. By May the final details were being hammered out on the fifth floor of Amoco’s Houston offices over late-night pizza. Whatever the truth of the rumours of bribes and support for coups, when the contract was finally signed in September 1994, BP and Amoco shared equal largest stakes, with BP chosen to head the consortium as Operator. Meanwhile SOCAR’s share had dropped again – down to 20 per cent. Those five years of haggling since May 1989 had seen the Azeri state’s slice of the oil developments drop from half to one-fifth.52
The grandiose title given to the deal, the ‘Contract of the Century’, suited all the signatories. It is still used today, yet few ask for whom it was the contract of the century – for the Azeri people, for the Aliyev clan, or for the oil corporations who had signed an immensely profitable deal and gained control over a major new resource base?
The backdrop to these negotiations was harrowing. While oil executives were meeting in Baku hotels, the Azeri army was retreating across the fields and Baku was filling with a flood of refugees from the fighting in Nagorno-Karabakh.
The Armenian forces achieved dominance, establishing a land corridor between Armenia proper and the conflict zone. Massacres were committed by both sides. By 1993, the Armenian military established a so-called ‘buffer zone’ much larger than Nagorno-Karabakh, occupying some 20 per cent of Azerbaijan, from which over a million local residents were forcibly expelled. But by spring 1994 the fighting had reached a stalemate, with Azeri forces unable to drive back the entrenched Armenians.53
The war is generally described through the lens of inevitability and ‘ethnic conflict’, both by local and foreign commentators. Yet it did not start because one ethnic group decided to attack another. It was more about controlling territory, and leaders advancing their personal ambitions, than about ‘questions of history, identity or national destiny’.54 Either way, it had a profound effect on the oil negotiations.
By the time the ‘Contract of the Century’ was signed in September 1994, a shaky ceasefire had been in place for only eighteen weeks, and Azerbaijan had effectively lost one-fifth of its officially recognised territory. Aliyev announced that oil would provide the means to recover the lost lands. Revenues would be channelled towards building up and modernising the Azeri army until it was able to defeat the occupying Armenian forces.
Sabit remains a supporter of the oil-extraction plan, and is clearly proud of his part in having made it a reality – despite the fact that by the time it was signed he had been moved to an academic position. He argues that when Aliyev agreed to the contract, the increased risks enabled the companies to ‘put forward more tight claims’, due to the unstable political situation.55
But these ‘tight claims’ do not matter to Sabit, who says ‘the main thing was that the deal was signed’, and that what matters is ‘how the oil profits are handled, not our share of oil’. In other words, the contract should be supported because of its geopolitical role, not because it was necessarily a ‘fair deal’ over its thirty-year lifetime. In a historical parallel with the Musavat government’s reliance on the British in 1918, the new Azeri regime was again mortgaging itself to foreign powers to maintain its existence.
4 LOTS OF EMPTY SKYSCRAPERS THAT WE CAN’T KEEP CLEAN
VILLA PETROLEA, BAYIL, BAKU, AZERBAIJAN
Finally, we are on our way to meet BP at their Azerbaijan headquarters. Running south beyond the president’s Palace and SOFAZ in its dark glass tower, Neftçilәr Prospekti follows the Caspian shore towards Bayıl. Set apart from the body of the city and perched on a rocky promontory jutting out into Baki Buxtasi, this district has its own distinct history as a naval dockyard and a prison quarter.
After the long walk through the dust and trucks of the main road, we are in need of a cup of coffee before our meeting, so we stop off at the Cottage Café which, as its English name suggests, is the preserve of expats: its menu lists shepherd’s pie and fish and chips.
Across the road, behind a high wall and a spartan courtyard with carefully tended plants, stands Villa Petrolea. This is not Ludvig Nobel’s estate with the watered shrubs above Baku’s Black Town, but the current home of BP Azerbaijan, named after Nobel’s nineteenth-century residence. This symbolism of corporate inheritance is evoked repeatedly. The inaugural meeting of the Azerbaijan International Operating Company in 1995 was held in the mansion built by the oil baron Zeynalabin Taghiyev. There is a strong underlying narrative here: the Western companies have returned to what is rightfully theirs after a seventy-year Soviet usurpation.
An armed guard stands at the entrance, above which fly the BP and Azeri flags. Much of the conquest of the Caspian seabed, and the accompanying restructuring of the Azeri economy and society over the past decade, has been
directed from inside these walls. While government institutions appear ostentatious or intimidating, the oil company’s headquarters in Azerbaijan are surprisingly discreet.
In the lobby, we watch a stream of staff and contractors flow through the turnstile, clean-shaven men in shirtsleeves and chinos. Placards mounted on the walls announce various ‘employees of the month’, alongside a sign advertising puppies for sale. The plasterwork on the stucco ceiling has a relief of hammers and sickles, which gives credence to the story that this was once a building connected to the Soviet navy. A previous visitor commented: ‘On the walls behind the security barrier, official Soviet five-year plan announcements have been replaced by BP advertisement posters.’1
ST JAMES’S SQUARE, LONDON, ENGLAND
To build the infrastructure of the Azeri–Chirag–Gunashli platforms, to suck crude from deep beneath the Caspian and to ship it to consumers across the world is a monumental undertaking. This shifting of matter around the planet takes place fundamentally for one reason: not social development, but profit. Ultimately BP, like the enterprises of Taghiyev or Nobel, is engaged in the extraction of crude only because the company can generate major returns on the capital invested. If BP could not make money out of oil they would not search for it, extract it and sell it.
Like all British public limited companies, the holders of BP’s capital are its stockholders, who invest in the company by purchasing shares. BP’s size and track record are such that it represents about 9 per cent of all shares traded on the London Stock Exchange, and thus is found in most broad-based investment portfolios. According to UK company law, BP’s directors must aim to maximise the long-term return on their shareholders’ investment. This is the directors’ primary obligation. Although a recent British law states that this should be done ‘with regard to’ the interests of employees, communities and the environment, the stockholders’ interests come first. For BP cannot function without the support of its shareholders. If the latter were all to sell their investments, the share price would crash. On the other hand, if the company were to fail and the shares became valueless, shareholders would lose their capital. So the company and its stockholders are locked in a tight embrace of mutual dependence.
The Oil Road Page 8