Azeris Stiffen Terms for Foreign Oil Companies

New government stance throws contract negotiations into confusion

By , Special to The Christian Science Monitor

WESTERN companies negotiating for the right to drill for vast reserves of oil in the former Soviet Republic of Azerbaijan have been told that the country's new government expects to receive at least 80 percent of the revenue from any deal it signs.

The tough stance adopted by the government of acting President Geidar Aliyev, who seized power in Azerbaijan June 18, has thrown contract negotiations into confusion.

Just 24 hours before Mr. Aliyev assumed the presidency, a consortium of eight Western oil companies had reached an agreement with the former president, Abulfaz Elchibey, and paid $70 million in presigning bonuses.

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That agreement was canceled by the new government. On Aug. 9 Aliyev explained his decision, saying the contract contained ``serious mistakes,'' and adding that he would ``not permit oil to be plundered'' from Azerbaijan.

Now, Rasuul Guriev, the new deputy prime minister with responsibility for the oil industry, says he wants to ensure that Azerbaijan itself will be the primary beneficiary of any deal.

``Naturally, I'd like 100 percent of the revenue to remain in Azerbaijan,'' he says. ``What percentage though is logical? In other countries where large companies have invested and drilled for oil.... the country with the oil has received between 80 and 85 percent. Naturally, we shall aim for that figure too.''

Eight Western oil companies are negotiating as a consortium with the Azeri government. They want to develop three separate fields in the Caspian Sea which hold reserves of more than 4 billion barrels of oil.

The terms of the contract they had agreed with the Elchibey government were not made public, but reports in the capital Baku suggest Azerbaijan would have been paid less than half the total profit if the deal had gone ahead.

Executives with the Western companies were unwilling to discuss details of their negotiations with the new government.

``There's a lot of change that's gone on in all the former republics since the break-up of the Soviet Union,'' says Mike McCullough, vice president of Pennzoil Caspian Corporation. ``I think a lot of patience is required by anybody who's coming in from the West.''

Some of the oil companies are now pursuing high-profile publicity campaigns in Baku. British Petroleum has distributed car stickers throughout the city and operates a car accessories shop in the city center.

The country's oil industry badly needs Western investment to modernize oil fields that were the world's largest at the turn of the century. After years of Soviet neglect, government officials say one in three of Azerbaijan's onshore oil wells needs completely replacing, if the industry is to continue functioning as the mainstay of the country's economy.

It is not the first time Azerbaijan has turned to the West. When its oil fields were first developed at the turn of the century, the Rockefellers and Rothschilds were among a number of wealthy families to invest in the country's industry.

But now the government is confident it can dictate the terms of any agreement that is reached. After 30 years working in the Azeri oil industry, Deputy Prime Minister Guriev exudes confidence about securing the deal he wants. ``I definitely think the Western firms will accept,'' he says. ``There's not just one Western company interested in drilling for oil here. So I think they'll go for it. Somebody's going to.''

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