"Stealth" Oil Agreements Threaten Azerbaijan's Reputation and Policy Progress

For the first time in the history of modern Azerbaijan, the State Oil Company has signed two oil development deals “in the dark,” without public notice of its negotiations with the foreign companies involved, and without the traditional public contract signing ceremony.

The Azerbaijan NGO Coalition is alarmed by this backwards step in the country’s excellent tradition of oil contract transparency. This incident may demonstrate the beginning of a dangerous trend in the preparation and signing of extractive industry contracts.

On May 22, the Azerbaijani Parliament ratified the two contracts: one for the development of the “Kurovdag” field, with the operator Global Energy, a company registered in the British Virgin Islands, and the other for the “Neftchala,” “Khilli” and “Durovdag-Bazanan” fields, to be operated by Neftchala Investment, a subsidiary company of Global Energy.

It has now been revealed that these Production Sharing Agreements were signed on February 3, 2009 at the headquarters of the State Oil Company (SOCAR). However, in a break with Azerbaijan’s standard and consistent practice, the public was not informed that any negotiations were taking place, nor was any public signing ceremony for the contracts held. To date, SOCAR has also declined to post any information about these agreements on its website.

Production Sharing Agreements are the most standard form of extractive industry contract and have became an integral part of Azerbaijan’s energy policy. The PSA negotiation is usually a multi-stage process, and as a rule agreements have been signed with recognized multinational companies. Unfortunately, civil society groups observe an alarming new approach with these latest agreements, which were signed in a non-transparent manner with a previously unknown company.

The process and terms for these contracts are especially troubling when compared to previous agreements, which were drafted to increase profit for Azerbaijan and to develop Azerbaijan’s high technology capacity and increase effectiveness with the help of the “know-how” of large multinationals. Under these agreements, Global Energy and its subsidiary would receive 80% of the income from the four Azeri fields, and there is nothing to suggest that the company is offering expertise or certain unique “know how” that the Oil and Gas industry of the country can benefit from.

Though Global Energy Azerbaijan Ltd. and its related entities are now engaged to develop a total of 16 fields under five different agreements, the company is still not listed in any business directory, nor has it ever held a press conference on these activities. It has never published any reports or provided any production figures during annual Caspian Oil & Gas Exhibitions.

The NGO Coalition also regretfully notes that these questionable agreements were signed without public notice just as Azerbaijan has been recognized as the first and only country considered to be compliant with the Extractive Industries Transparency Initiative, a voluntary global standard for transparency and accountability in the extractives sector. These latest developments are a serious blow to the country’s image and its long history of achievement and international leadership in the EITI process.

Media contact
Fidan Bagirova fnajafova@osi-az.org