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MARKET ITSELF WILL VALUE SOCAR'S WORK EFFECTIVENESS
"CASPIAN ENERGY":
- President, what is the outlook for restructuring SOCAR and on what principle will it be carried into effect ?
Natig Aliyev :
The question is sufficiently complex and I will have to answer it more verbosely. No matter what way we choose, we needs to do it so that oil industry be effective. To reply this question, I will have to analyze a lot of considerations, the basic of which are : history and peculiarity of oil industry in Azerbaijan, its present state, foreign investments contributed to the oil industry, and our wish to go the way to market-oriented economy.
The oil industry was developed as an independent sector and as the ground of the republic's economy. It was controlled from Moscow in a centralized manner by the USSR's Ministries and it left its mark - a too heavy burden was laid on the oil industry. Neftchala, Ali-Bayramly, Siazan are all the settlements and towns that have arisen on the basis of the upstream oil industry. The population of these settlements, their lives and interests were wholly and entirely connected with an appropriate oil and gas resource directory. It pays all the bills, builds roads and takes care of a settlement. AzNeft (the former name of the head office of Azerbaijan's oil industry) is a large transactor, which is engaged in not only oil production but also supply the settlements. In turn, it has impact on cost price of crude the oil and gas resource directories produce. One ton costs more than Manat 500,000, i.e., over $150. Today we gain $50 after deducting the transport costs from sales of the crude oil.
After our independency has been gained, we got a large oil industry as an inheritance with great opportunities but out-of-date and obsolete oil production technology and equipment and declined oilfield economy. For example, there are around 9,000 wells on land, most of which must be wound up, want repairing or require additional drilling. There are no funds for all this. Out at sea hydro-engineering constructions tens of kilometers long declined over time from corrosion and bad weather. They want replacing. By our calculations, Manat 850 billion ($200 million) will be required today to repair hydro-technical constructions, tubular facilities, roads and sections 100km in length, i.e., now we are to have the sum to put in order the hydro-engineering constructions and provide proper working conditions in the oil fields. The actions will not boost oil production, the output will continue to fall. So these $200 million can be referred to sunk, unrecovered investments. Before they are put into the project, we must think it over when we can return the sum. Thus, history, the present state of the industry, contracts with foreign companies are three factors to be taken into consideration when talking about restructuring, destatization, and privatization of the oil industry.
The agreements signed with foreign oil companies from various countries create an image and reputation of the republic. It has already had a certain role to play in establishing Azerbaijan as an independent state famous across the globe. Therefore oil production cannot be made over to private ownership because today oil is above all the policy of the State.
Second, the oil industry plays a huge role in the republic's social and economic life. I do not say yet about petrodollars that are the main source of the foreign exchange revenues to the republic's budget. You know it. In addition, SOCAR solves many social and economic problems of the republic giving virtually free more than a half of refined products and almost all gas to the republic's population.
When someone says the Azerenergy company gives the households electricity, it is a trick. Because all electricity is generated by using SOCAR-produced fuel.
Azerigas, the close-type joint stock company, owed more than one trillion manats to the state-owned oil company, and Azerenergy, joint stock company, is over 2.5 trillion in debt to SOCAR. We have also been converted into a lending body of the republic's economy. Thus, to sell-off SOCAR at once means to disrupt the republic's economy but it is in addition a social problem. The above said does not allow to set our course to privatization so decisively. But we need to embark on it. First, because there is an instruction by Azerbaijan President to began this year the destatization of large-scale enterprises, companies, ministries, including SOCAR,. Second, a difficult oil price environment across the globe makes us hasten. The collapse in oil prices revealed many flaws in SOCAR's structure and management system. The enterprises providing services, to which we are to pay salaries and wages, despite the fact that many of them work using 20-30 percent of their full capacity become a heavy burden on SOCAR. Let us suppose we have an association for machinery construction, which is engaged in bringing out spare parts and making equipment. Irrespective of a demand for their goods produced, they go on working, though not to capacity. Wage bill remains unaffected, around Manat 40 billion per month. It becomes a heavy burden on oil producing enterprises and of course. But it can continue no longer so. We understand that these organizations must be cleaned from the junk, various collateral and supporting entities that are now of no effect. I certainly do not have in view of research subdivisions, but machinery construction, numerous transport and construction organizations, trusts must be cut.
For instance, the geophysical trusts are incorporated into SOCAR, but a question is that whether they meet our current needs for drilling exploratory and production wells and we need to keep such a number of trusts. A proprietor would get rid of them but we do not get the opportunity to do it.
So, in first place, one needs to husk SOCAR's management office but to retain its backbone of oil production. It will allow to improve financial opportunities. Enhancing them, we will get both good cost price and earnings. It will enable to increase capital investments and direct them to development of SOCAR's projects.
It is the first problem to be solved and we in turn must convince the government that we must go this way.
As to the trusts, they will have to mull over on their own, enter into contracts with other Caspian states. Our business is to produce oil and to keep and maintain everything what is needed, the rest of our activities must be done by us on the contractual basis.
Let us take AIOC as an example. AIOC is a transactor consisting of a 200 men staff. It currently produces over 5 million tons of oil per year, and if they need something, they enter into contracts, issue tenders, choose for themselves the best conditions and terms determining quality, price and time. They do not keep a fleet, a drilling company. It is experience. We floated Caspmornefteflot (the Caspian offshore fleet) for itself and are forced to maintain it. We do not need today so a lot of transport and construction organizations, machinery construction entities, geophysical and drilling companies. For example, now SOCAR has about 20 drilling companies at its disposal. We need to organize a bid competition among them and select the best bid. After this, we must disclaim responsibility for their activities and they must take charge of drilling wells.
So the first thing we are to do is to change SOCAR's framework to be simple.
Oil and gas producing enterprises recover oil. They provide the flow of oil along the well - storage tank line. Then an oil exporting entity, i.e., a transport system controlled by the Main Pipeline Production Association is put into serve, though there is only the name that remained from it today, as main oil pipelines have become non-main lines long time ago. They move oil via the internal pipeline system to oil refineries, where the crude is processed. The final refined products are then bound for the companies that sell them and get back the money to those who produced the crude. This simple scheme is to work permanently, and I said nothing new here.
However, it will take a minimum of three to five years to restructure the framework under the blueprint. And until we give out our fuel at a free charge, SOCAR will remain the current SOCAR.
С.Е:
What is the way out of the present situation?
N.A. : For example, they want today to transfer Azernergy under guidance of foreigners who will make money by selling refined products and give some earnings to SOCAR. The same way can be used relating to Azerigas. Kazakhstan and Georgia acted in a similar way. And when SOCAR's money will return to it, it will become a very powerful organization.
Today it is much said about a share of foreign oil companies in projects for developing Azerbaijan's oil fields but we award them only the structures or blocks we are simply not in a position to tap on our own.
As a matter of fact, it is up to the market itself to decide everything. The market shows the run. Let us see as SOCAR uses services of only our drilling companies, which deliberately overestimate a price for a meter of footage in drilling.
When I am not responsible for these companies, they will reduce their prices. If they do not cut them, I will invite foreign drilling companies. Why must I keep 40 drilling rigs, if out of them only five ones are operational? Why must I employ so many oilmen and staffers providing various services?
Therefore, on the one hand, we as if want to go to market-based economy but, on the other hand, we start think of suddenly something happening. In this event, one did not need to talk about market-oriented economy, let us return to a socialistic system, under which we will give each person one penny from the state property carved up and we will see again later that we go back.
С.Е:
President, is there any particular program ?
N.A. : Today we can say SOCAR submitted some proposals to improve the management system for consideration and adopting at the highest level.
As yet it is unknown when we are told that it is time to take any moves. Today, as I have already said, much does not conform to what have already been 5, 6, 10 years ago. Therefore, the need for reorganization, restructuring, destatization of some organizations have already brewed. It is a requirement of life. If we do not do it today, it means that we will lose something else and come to still more worse.
A SPIN-OFF OF FOREIGN INVESTMENT MANAGEMENT DEPARTMENT FROM SOCAR TO FORM A NEW ORGANIZATION MUST TAKE PLACE IN FUTURE
С.Е:
What stage is a project for setting up Azerbaijan's fuel and energy ministry at ?
N.A. : I have already given you a rough sketch of what way SOCAR must go.
The second aspect of the matter is foreign oil companies. As a whole, there are 19 agreements that have already been sealed and we go on working next.
When one contract existed, SOCAR checked up, regulated, controlled sufficiently easily within the framework of AIOC's Steering Committee. We got enough time to cope with this business. But over time new consortia are founded and it means new capital investments, running costs, employment of people, an increase in the work volume, the crude under export, and then the yet sold crude, it is a return on investment, distribution of profits, a part of which went for reimbursing operating and capital expenditures. A profit is formed, how it must be distributed, whether the sharing corresponds to an agreement, the check-up of accounting documents and so on. It is a huge work. It starts from oil production, its accounting, gas production, etc, the delivery of crude to a terminal from a well, its pumping through pipelines, its sales, and wherever there are expenses and very complex relationships. Therefore, on the one hand, SOCAR became a representative of the government in deals and agreements, on the other hand, we are both an equity partner and a contractor. Hence, any uncertainty arises, which in turn makes difficulties for both us and contractors.
Now that there are many consortia, each of them hits its own problems. This can best be seen by an example of a project for development of the Shah-deniz concession. The consortium faced a problem : during the drilling of an exploratory well some diesel power generators went wrong, they were taken away to be replaced, they were given back. The consortium was forced to go on drilling the well from the Dada Gorgud semi-submersible drilling rig. Some consortia carry out geophysical studies, others ask a drilling rig to spud appraisal wells. It is a tremendous work, in which SOCAR acts as a governmental organ or represents the government. The situation changed sharply since then the volume of the works has increased. So we made a resolve to form a specialized Foreign Investments Department (FID) but I do not think it performs its duties today.
С.Е:
What functions must the FID perform ?
N.A.: FID is to become powerful department, which submits to SOCAR so far and works within the framework of SOCAR. Over time it would become a unit independent on SOCAR as a result of a spin-off and submit to either the Cabinet of Ministers or President himself as the department compiles with functions of the most importance to the oil industry : it attends to providing a reliable source of foreign exchange revenues. So the structural adjustment suggests in future for the department to preserve the duties,particularly, to draft agreements and control their fulfillment, to account for the volume of the work, to account for cash flow, to control the moving oil out of Supsa and Novorossiysk and its sales. It is a vast field, which over time must be independent. Similar changes are to take place in other organizations and subdivisions of the Fuel & Energy Complex (FEC). It largely concerns Azerenergy, Azerigas, though other approaches are possible. For instance, the government can transfer power stations, consumption systems or an electricity distribution system to foreigners to control, but there are some peculiarities to be considered on the basis of a market-based economy's principles.
Of course, in the formation of the bodies, in the republic there must be pursued a total policy, strategy in the fuel and energy area, including oil, gas, their processing, electricity generation, consumption and so on. And so here a state-controlled body, which will determine the relationships between its various subdivisions and lawmaking and executive branches of power. This organ is designed to be involved in improving laws on various sectors of the Fuel & Energy Complex. Some laws can be made for the upstream oil industry, others can be written for the downstream oil industry, the third laws can be applied to power generation, the fourth laws can be extended to Azerigas. But these laws must be made, proceeding from the essence of these industries and from what they produce, what is their today's financial position and so on. If credits are extended, the Ministry is to determine more priority and effective projects, and in doing so, it is not to make a choice between oil industry, electricity generation, oil refinery or something else. Above all, one needs to turn attention to effectiveness, the quickness of return on investments employed. Ministry is to make a choice in regard to a credit policy : where, in what sector, how and how much of money is to be put into a given sector. The duties of the future ministry are to include the establishment of contacts of Azerbaijan's Fuel & Energy Complex with other countries as well as the making of laws, for example, the preparation of Law On Oil and so on. The Ministry is to submit proposals and represent all the Fuel & Energy Complex in its relations to lawmaking and executive branch of power and the customs committee.
С.Е:
Are there in Azerbaijan today the necessary experts to fulfill such a volume and quality of works ?
N.A.: There is the TACIS program. Also, other programs, which reiterate endlessly that it is essential to improve training experts, are available. The Ministry would not start from scratch. There are some subdivisions, which will be under its surveillance, I do not say they would be governed. If the Ministry pulls strings of SOCAR, Azerenergy, it will do harm only. The Ministry must serve these companies' interests.
Today SOCAR is a state-owned oil company and tomorrow its stocks will be sold to private persons, perhaps the same fate waits for Azerenergy. The Ministry would represent the interests of these companies in the government, it also would favor the development of the Fuel & Energy Complex.
If in doing so the Ministry begins to interfere in the company's technical issues, for example, to indicate what quantity of oil is to be produced, why is it in the site that the well was drilled, why was the oil sold at such a price, we are getting nowhere.
С.Е:
Will the ministry take on itself the negotiating functions of SOCAR or will everything remain as before ?
I have already said over time the Foreign Investments Department can became an unit independent on SOCAR as a result of a spin-off and to submit to other organ of SOCAR. Of course, the department is to have subdivisions, which shall be involved in the investment policy. To carry on talks, one has to be a specialist. Such experts in West are called negotiators. Even if someone takes the post of minister, it is not enough to negotiate a draft for a production sharing agreement.
С.Е:
Will the department have to come under the Ministry authorities?
N.A.: As to the investment policy, now we do the biddings of President. It is up to him to carry on the negotiating process or to award some fields or areas to foreign companies for their exploration or development. It does not mean that President has any negotiations with someone or receives the leaders of expat companies. It is then very important, he assesses the political matters in the countries and the peculiarities and the operating and financial highlights of the companies which represent the countries. SOCAR currently has certain reputation in the country and, above all, among its shareholders that are represented by the public. From this point of view, President defines the policy of foreign investments and, as you see, the interests of 24 largest companies from 14 states represented in Azerbaijan.
And it is I think a merit of Azerbaijan President wholly and entirely.
A merit of the Foreign Investments Department consists in making agreements economically profitable for Azerbaijan. The department conducts negotiations, governing by legislation in force and taking the available current risks into consideration. FID provides a maximum economic effectiveness of contracts for the republic.
But it does not mean that Energy Minister would dictate them, for example, that expenditures should be reimbursed at a rate of LIBOR plus 7 percent rather than at that of LIBOR plus 7 percent. For this it is necessary to know the present banking and financial system. The Minister cannot dictate, specialists will be under double subordination anyhow because in order to award any structure or any block of perspective areas to foreign companies for exploration and development, SOCAR must give them a permit, i.e., a decision will be made by everyone.
But not so much a negotiating process is important as other function. The process will end soon (we would collect 30 more agreements and then sign one deal every 2-3 years. Such is the dynamics of the process). At the time the need for other function will arise. This function is an accounting mechanism management and a control over an agreement fulfillment. The need for them will never vanish. On contrary, it will grow all time. While the Ministry has a co-ordinating role to play, the duties of the organ as a controlling organization will include the making of a report on profit distribution between a foreign investor, the State and SOCAR to the Government. The proposed Ministry will have to present a report about how much of oil have been processed and sold. The Ministry I think must be set up in the near future.
OIL REFINERIES ARE TO PRIVITIZED AFTER EXIT FROM SOCAR
С.Е:
How do oil refineries blend in with these schemes?
N.A. : No doubt, oil refineries is an important component at SOCAR. Of course, oil processing is an independent real sector distinguished from upstream oil industry. Technologically, it has nothing to do with oil production. Oil unites the two sphere of the Fuel & Energy Complex. Before the USSR's collapse, they were quite independent industries. Their merger I think took place because relations between enterprises changed sharply and a non-payment system was brought into life quickly.
Such is the present situation. For example, our oilmen produced crude oil, then it is sold within the republic at an administrative price set around Manat 193,000 for one ton, further the oil is bound for an oil refinery. Proceeds gained from refined product sales is distributed in reverse order and goes for reimbursing various expenses. In doing so, it is quite immaterial to a business firm what part of a final product was sold, and what part is was not done. Azerenergy will secure the lion's share of refined products. As a result, rather than return 90 percent of cash to oil producing associations, only 10 percent of the total proceeds is given back to the associations. A non-payment system led today to what the self-sufficient sector cannot exist, therefore I raised a question of the State Fuel Committee having to be wound up.
It is today essential for oil refineries to operate so far as being incorporated into SOCAR. After the problem of non-payments is solved, oil refineries could quit SOCAR without the detriment of themselves and other enterprises. The refineries might be privatized and incorporated because they do not possess resources. The more especially as oil refineries cannot be called monopolists. The Iranian, Russian, Georgian. Turkmen refined products are imported to the republic. What monopolists they are! They are usual plants.
С.Е:
If within 2-3 years a problem of non-payments is not resolved, will a heavy load of upgrading oil refineries be shouldered on SOCAR?
N.A. : In order to modernize the plants, it is above all vital to clear up whether there is a need for this.
If the upgrading of oil processing plants costs today $500 million, and someone tells me that the sum must be paid for the quality of the final refined product to be enhanced, I ask the man : when the quality is enhanced, whether he will return the money to me and at the expense of what he will get the money back.
A modern plant.. It is certainly very good. But an investor says : return me my money in terms of oil. We always get enough time to return the money in terms of oil but it is already different matter what we need it for.
Many companies offer the advanced equipment and the latest technology but when we come back to economy and calculate how much it costs and what return is on investment, these projects do not bear any scrutiny. So we offer today at first to separate these refineries from SOCAR, to privatize them and I tell Mitsui, Shell, Exxon and Mobil later - buy a part of the plants' shares and so invest in them as much as you want. But here I am not sure whether the companies will agree on it since now they know that it is a state-owned plant and whatever upgrade, whatever refurbishment is carried out under governmental guarantee, and we are committed to returning the money. Therefore the modernization of the oil industry is open to question.Oil refineries can quit SOCAR without the detriment of themselves and other enterprises. After this, the refineries might be privatized and incorporated because they do not possess resources.
MPs HAVE BECOME MORE COMPLIANT
С.Е:
The current state budget is covered by oil revenues and the Members of the Parliament have not disputed yet a profitability of an oil deal. Does it mean that common sense won?
N.A.: Everything is right. The bonuses, which are given by oil companies, keep the budget in recent years. Now there are no MPs and opposition's attacks on agreements. Some issues remained but they do not worry us much. An attitude to these contracts changed. And our deputies have now more information on our deals.
"GAS" FORECASTS OF FOREIGN COMPANIES SURPRISE NICELY..
С.Е:
Can one say today about any conclusions concerning the results of the studies conducted by Shell, Exxon, Conoco and Statoil in the area of gas production, gas processing and its sales?
N.A.: Gas industry is of great importance to Azerbaijan and was of great value to all Azerbaijan's economy earlier. I think therefore over time Azerbaijan will come up to the levels equal to oil ones.
If one turns attention to history of tapping oil fields, one can notice that we produced casinghead gas as a by-product when finding oil. If a gas deposit was discovered, gas came to a plant to be processed. We did not account for cost price and volume of the gas produced, let alone casinghead.
When some countries gained their independency, each state started reckoning. Everyone understood that gas is the most important source of heat we underestimated in due course. Specially it became clear at the beginning of the 90s when gas production slumped. At that time the population felt a strong shortage of this kind of fuel.
Azerbaijan has been gasified to 98 percent. The situation was observed nowhere in the USSR and perhaps over the world. And the problem is now highlighted. At the beginning of the 90s gas started to be imported from Turkmenistan. The republic got into great debts. There were some violations. At this time we owed Turkmenistan alone around $80 million. It made some difficulties. Therefore President made a correct decision to stem gas import. We do not know it is good or bad but we are in debt to nobody. Azerbaijan has more gas than in the neighboring countries and the current gas environment in the republic is much better. Some companies carried out some gas studies pertaining to the outlook for gas production and assessed available gas resources in Azerbaijan.
And I was nicely surprised by these results. According to western companies' assessments, Azerbaijan may become the largest gas producer and exporter in the next 10-15 years. By their calculations, in doing some works under a program for gas exploration and development, Azerbaijan might produce as many as 60 billion cubic meters. It is a very big figure for us. It amounts to 60 million tons of oil equivalent.
These studies are of great value, they affect not only exploration and development of gas but gas transport and its sales to other countries, too. The issues of gas distribution through the internal transmission grids and electricity generation, the opportunity to process gas within the country, selling some volumes of liquefied gas, the construction of a gas processing facility, a station, a gas-fired power station and so on have also been studied. On the basis of the data, we are devising a governmental program to harness our own gas resources.
WESTERN COMPANIE ESTIMATE AZERBAIJAN CAN BECOME THE LARGEST GAS PRODUCER AND EXPORTER IN THE NEXT 10 - 15 YEARS.
С.Е:
How do you assess the outlook for gas export to Turkey?
N.A.: If one looks at our geographical location, in principle we can export gas nowhere, except for Turkey. If one takes a look at a map, it is seen that we are surrounded by Turkmenistan, an owner and producer of large gas resources, by Iran from the south, which also produces its own gas and exports it, by Russia, that is a giant, which have over 30 percent of the world's gas resources. The only outlets for us are Turkey and Georgia. Turkey is a potential gas consumer. It is a huge state that does not possess its own energy resources. From year to year the state boosts fuel, energy and especially gas consumption. So everyone strives now to win the market. Among them are Russia with its Blue Stream project, Turkmenistan with a subsea Caspian gas pipeline project. Azerbaijan does not have now such an self-sufficient opportunity but now we can use Turkmenistan's aspirations. We will be able to use the Turkish market in our interests provided that we blend in well with the Turkmen-Turkish project. There are no different options.
As to Ukraine, this state has a wide transmission gas pipeline system running from Russia. It is unprofitable to carry gas to Ukraine because at any moment the market conditions can be reconsidered. Let us suppose that we started to build the gas pipeline that will cost us hundreds of millions of dollars, maybe $1 billion. At this time Russia can reduce a price for gas and our project will come unstuck at once. So the market has already been occupied.
JOINT VENTURES ON LAND : THOSE WHO ARE DROWING MUST RESCUE HIMSELF ON HIS OWN
С.Е:
What does the future hold instore for unprofitable joint ventures of land
N.A.: The cost of projects is rather high. So we take a very serious attitude to such proposals and seek to draft agreements so that they could be mutually beneficial for both us and our foreign equity partners. We seek now to award oil fields for development to the companies for them to invest in the fields, if the companies certainly think the fields contain enough oil there. Our stance is such : a foreign company starts to operate a field but our employees go on working there, to whom salaries are paid. Thus, we consider all the proposals on the onshore oil projects. The more them, the better. And if in the process of the work it is revealed that these project are not enough to be effective, it is of no concern to us. It is up to the companies to solve their problems. If they cannot do their business well in the field, let them give it back.
С.Е:
How is the working out of projects for redevelopment of offshore oil fields progressing?
N.A.: Now we start intensively negotiating a project for rehabilitating oil production in the shallow-water portion of the Guneshli oil field. We advised Azerbaijan President of it. We regard now this field as one out of the most important to us. There were many talks about and proposals on it. It is not so easy to find an approach to the negotiating process. It would be too light-headed to think so. We understand well it is of what value to the republic's economy.
Having weighed up the pos and cons in regard with a proposal submitted by Conoco, we dovetailed with the US company a scheme of financing, exploration and development of the field, how to recover all capital expenses. When the company accepted our conditions and terms, we informed President of it. He approved these proposals and now we will carry on active negotiations with all companies, including Conoco. We certainly will pay attention to what Conoco works on this project more and longer than other companies and more thoroughly scrutinized all the problems. But there are other companies. They will submit their proposals and if they prove to be better than Conoco's offerings, we will accept them.
COMPANIES HAVE BECOME MORE FAVORABLE TO THE BAKU-CEYHAN PROJECT
С.Е:
How is the Baku-Georgia-Ceyhan project progressing today?
N.A.: Companies began to understand us. They became more compliant and more favorable to the Baku-Ceyhan project. It occurred because of us having not changed our former views, which are that the Baku-Ceyhan pipeline will be more effective than the Baku-Supsa project through the Bosporus.
Of course, for its construction costs and extension, the Baku-Supsa oil pipeline is much cheaper. But a selling price of crude is reckoned at Sanchaly rather than Supsa. Supsa is not a market yet. Oil has to be moved out thence. When we calculate an oil price after its shipping via the proposed Baku-Ceyhan pipeline, the price turns out to be rather flexible and effective compared with that of export through other routes, i.e. in bypassing ways (by tankers to Burgas and then to Alexandropoolus, via the Odessa-Brody route to Ukraine, to Samsun to bypass the Bosporus).
We are therefore in talks with Turkey. We work on two important documents - the guarantees of the Turkish government and the contract itself for the Baku-Ceyhan pipeline construction, the cost of which is set in advance.
С.Е:
Do you find that the laying of the Aktau-Baku pipeline will help the Baku-Ceyhan project?
N.A.: Any oil, which will pass through the territory of Azerbaijan, will promote to enhance the effectiveness of Azeri pipeline network. When we talk about the Baku-Aktau project, it is unknown yet what is concerned because Kazakhstan does not tell us about export guarantees.
Kazakh oil is today shipped through Azerbaijan anyhow. It is simple in today's oil volumes transported it is more profitable to ship it to the port of Dubandi and then move it out of Ali-Bayramly to Georgia. By Kazakh side's calculations, only after the quantities of crude carried in such a way is in excess of 10 million tons per year, it can be said about a profitability of the subsea Caspian oil pipeline.
С.Е:
In case if oil is mixed, how will the fact that sulfur and mercaptan contents in Kazakh crude significantly exceeds a marginally allowable standard be taken into account?
N.A.: Now there exists a bank of oil quality as well as coefficients of translation. When oil mixture is sold on a market, in settling for oil, the quality of which is higher, those responsible must make amends to the injured party for the losses.
С.Е:
We do not get a compensation like this..
N.A.: Yes, you are right. Transneft has no bank of quality. It is just as the same case when Trnsneft has to sort out all kinds of crude oil, then to select one sort as a standard and to peg all the sorts to it. It will allow to calculate compensation coefficients. Russia's oil and gas processing enterprises do not agree on it now and Transneft does not work on this.
С.Е:
But western oil pipeline has already been brought onstream. Why could we refuse to use northern pipeline?
N.A.: We certainly can refuse but we have much more oil than the Baku-Supsa pipeline capacity. Therefore so far northern pipeline will operate. Of course, while AIOC as operator moves its equity crude through the Baku-Supsa pipeline, the SOCAR-produced crude can be shipped via the northern route.
С.Е:
What is your attitude to the Central Asian route for exporting Caspian oil?
N.A.: There are many projects now. And when we talk about them, one must regard them as projects. If we talk about the Baku-Ceyhan project, it does not mean yet that it will be built today. It also concerns the pipelines, which Turkmenistan told about, when offering the Central-Asian project running from Turkmenistan across Pakistan to Arabian Sea through Afghanistan, and when Kazakhstan said about Chinese market. In 1991 the Caspian Pipeline Consortium (CPC) was formed. An appropriate agreement was concluded in 1991. These projects have not been put into practice yet.
Only the talks became more active and intensive. For example, it is said that in 2,001 the first 15 million tons will be pumping by using the CPC route. In three years, the route throughput will be increased to 30 million tons per year. A pipeline is a tool for bringing any projects for development oil fields into effect. It is a derivative repercussion of what occurs in the Azeri-Chirag-Guneshli concession and in other perspective areas of the Caspian Sea. This derivative repercussion will be developed and realized according to exact regularity and in accordance with what will take place here. If the pace of oil development and an increase in oil production progress at a great rate, the pipeline will become real. The same refers to our fields. For instance, the discovery of oil deposits in the Shah-deniz field can be an incentive for the MEP project to be intensified.
С.Е:
Какая судьба ожидает нерентабельно работающие СП на суше?
Н.А: Стоимость этих проектов достаточно высока, поэтому к подобным предложениям мы относимся очень внимательно, и стараемся подготовить соглашения так, чтобы они были обоюдно выгодными как для нас, так и для наших иностранных партнеров.
Сегодня мы стараемся отдать эти месторождения под разработку, чтобы компании в них инвестировали, вкладывали, если конечно, они считают, что там достаточно нефти.
Наша позиция такова, вы берете в управление месторождение, мы отдаем его вам, но там продолжают работать наши сотрудники, которым выплачивается зарплата. Поэтому мы рассматриваем все предложения на суше Чем их больше, тем лучше. А если в процессе работы выявляется, что эти проекты недостаточно эффективны, то это не наши проблемы. Компании сами должны их решать. Не выгодно, пусть вернут обратно месторождения.
С.Е:
Does have the current oil price environment impact on the conditions and terms of consortia being formed in Azerbaijan?
N.A.: Our conditions and terms remain unaffected. If one follows the run of how the contracts have been signed as from 1994, one can remark that there are significant changes in the plan of tightening claims, though the conditions and terms of the first contract were rather tough. Today, as you know, our contracts are among the first ten of contracts concluded all over the world in regard with the toughness of their economic conditions and terms. Every year the data are updated. We make our claims tougher from year to year and do not water down them. Azerbaijan has already got enough number of deals and it allowed the country to be provided with enough volume of the guaranteed investments in exploration of structures situated in Azeri sector of the Caspian Sea. I believe even an average statistical factor of successfulness give us all grounds to say about what Azerbaijan will become a large oil producing and exporting state in the near future.
I do not hold an opinion that one needs to await and leave everything for future generations. I take a stand for sustainable development, i.e., the meeting of present needs without compromising the ability of future generations to meet their own needs. I agree with what each proposal, if it is economically profitable and conforms to the present situation we come to grips with, must be accepted.
С.Е:
SOCAR permitted Elf Aquitaine and Mobil to extend exploration period to 800 days. Is it an objective need or concession. If they had started the exploration earlier, it would have had more impact on investment attractiveness of Azeri fields.
N.A.: We are not obliged to offer concession to anyone. An exploration period is very involved for oil companies because they take the great risk at this time. On the other hand, we increase it still more when set down in an agreement that they are committed to doing something, namely, to drill not less than three wells to a certain depth and reach a certain horizon. On the one hand, it is good. But on the other hand, when a company comes and says it intends to upgrade and refurbish the third drilling rig and it will take some time, i.e., the company procrastinates exploration not on purpose and it is in no way to blame for this, we can meet it halfway.