“New Contract of the Century”: agreement on Baku's terms

“New Contract of the Century”: agreement on Baku's terms

Baku, Azerbaijan, Sept. 15

By Elmira Tariverdiyeva – Trend:

A historic event occurred on Sept. 14 – a new contract, which envisages development of the Azeri-Chirag-Gunashli (ACG) block of oil and gas fields in the Caspian Sea until 2050, was signed between Azerbaijan and partner companies.

The main thing is not that Baku proved to all the interested parties that oil reserves will be enough for Azerbaijan for many years and cooled off mudslingers who were predicting the country’s early fall from the ranks of global major suppliers of hydrocarbons.

Conclusions can be drawn from the new contract signed on new conditions. This is what matters.

When Baku signed the first “Contract of the Century” in 1994, Azerbaijan was entering the era of independence and hadn’t yet proved itself as a reliable partner in the supply of hydrocarbons. The significance of that contract cannot be overestimated - it was among the biggest agreements both regarding the volume of hydrocarbon reserves and the total volume of proposed investments.

The contract didn’t only have great importance for Azerbaijan’s economy, but also had significant political weight, since Baku became one of the long-term partners of the West in such an important sphere as the energy sector.

The development of the ACG block helped Azerbaijan achieve high GDP growth rates in a short time, and as a result, the poverty level sharply decreased in the country. The funds received from the signing of the contract made it possible to build all necessary infrastructure in the country, jobs were opened, new buildings, bridges, roads were repaired and new planes were bought.

For over twenty years Azerbaijan has been proving its reliability as a supplier of hydrocarbons, a country with an absolutely transparent scheme for investing in the energy sector, a country, which declared open door policy and attracted huge volumes of foreign investments in large-scale development of the richest oil and gas deposits of the Caspian Sea.

In addition, over the past years, the volumes of proven oil reserves have actually doubled. Therefore, the “New Contract of the Century” was signed on new conditions.

The equity share of Azerbaijan’s state oil company SOCAR in the ACG deal is now 25 percent instead of 11.6 percent. In addition, foreign partners who themselves insisted on the extension of the original contract, also pledged to pay a solid bonus of $3.6 billion within eight years to the State Oil Fund of Azerbaijan (SOFAZ).

Major funds will be invested in the new project, presumably this figure can reach $40 billion in addition to $33 billion, which have been already spent.

Even given the current oil prices, the extracted oil reserves will bring the income of about $180 billion, and, according to the conditions of the new deal, Azerbaijan will receive 75 percent of this amount.

In addition, new agreement opens up prospects for export of new technologies to Azerbaijan, opening of new jobs and the country’s acquiring the long-term title of the West’s reliable energy partner, which will henceforth build relations with its partners exclusively on own conditions.

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