A new report on Azerbaijan's oil industry documents how millions of dollars of revenue disappear into the hands of obscurely owned private companies with the apparent cooperation of the government-controlled state oil company.
The report by the NGO Global Witness, presented in London on December 10, found a pattern in Azerbaijan's oil industry of partnering with shadowy companies that make hundreds of millions of dollars handling oil but whose business role remains unclear:
"Little-known private individuals, private companies, have been inserted into the oil industry of Azerbaijan, and nobody knows who these people are or why they have been included," says Tom Mayne, a lead researcher in the yearlong investigation.
The report details in particular the case of one individual who offers a clear example of the pattern. He is Anar Aliyev, a 35-year-old Azerbaijani entrepreneur who has created multiple offshore companies that either hold contracts with or engage in joint ventures with Socar, Azerbaijan's state oil company.
The companies themselves perform few services that Socar cannot do itself and Aliyev (who shares a common surname with, but is no known relation to, Azerbaijani President Ilham Aliyev) had no track record in the oil business before creating them.
Global Witness found that between 2007 and 2012, companies linked to Aliyev were involved in at least 48 joint ventures, production-sharing contracts, or other agreements with Socar and published profits of $375 million.
In one example, an Aliyev-owned offshore known as Heritage General Trading acquired shares in Socar's own oil-trading subsidiary, Socar Trading. This enabled the offshore to receive 25 percent of Socar Trading's revenues.
Global Witness notes that the share deal was struck in 2007 "at a time when the state oil company was already enjoying increased revenues from rapidly increasing oil production and there should have had no need of outside investment on the relatively minor scale" that was offered. To buy the 25 percent stake, Aliyev's Heritage General Trading paid just $5 million.
Then, five years later, Aliyev's company sold its shares back to Socar for $118 million, more than 20 times what it originally paid.
RFE/RL Azerbaijani Service correspondent Khadija Ismayilova, who also has investigated the Aliyev deals, says such deals raise widespread public concern in Azerbaijan that the state oil sector -- which is directly controlled by loyalists of the ruling party -- is being deliberately drained of part of its revenues for the benefit of powerful, but unidentified, parties.
One of the reasons for such public concern, Ismayilova says, is how little is known about Anar Aliyev himself. Whereas other successful oil businessmen have highly public records, Aliyev keeps such a low profile that many in Azerbaijan assume his role is to merely hide the identity of the true beneficiaries of his companies.
"What do we know about Anar Aliyev? Actually, the honest answer would be nothing," Ismayilova says. "He had no [previous] relation to the business he took over starting in 2007 and he became a partner in huge projects, and he could be a perfect proxy for someone more significant than he is, but that question is still open."
Clear As Sludge
The Global Witness report does not establish whether Aliyev, or some other party, is the true beneficiary of the millions of dollars the companies have made by inserting themselves as obscure middlemen into Azerbaijan's state oil business.
But the report says such cases sound the alarm that current international efforts to promote transparency in state oil businesses like Azerbaijan's need to be tightened.
Azerbaijan has long been considered a poster child for the world's highest-profile campaign to persuade resource-rich states to provide their citizens with access to information about how much their governments earn from the sale of their oil, gas, minerals, or other natural wealth.
That campaign, the Extractive Industries Transparency Initiative (EITI), was established in 2003 and comprises 40 countries participating on a voluntary basis. Azerbaijan was the first country to be assessed as EITI-compliant in 2009 and Baku often cites this rating as evidence that it is willing to let civil society hold it accountable if discrepancies are found its oil-revenue figures.
However, the Global Witness report notes, the structure of the state-oil structure itself remains opaque. "So far, despite the EITI, the Azerbaijani people are still in the dark about the decision-making process for significant extractive deals and cannot see where substantial amounts earned from the country's resources are going," the report concludes.