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Azerbaijan: EBRD Compares Oil Fields To North Sea And Alaska

London, 16 April 1997 (RFE/RL) -- A report published by the European Bank for Reconstruction and Development says the oil fields of Azerbaijan are on the point of becoming as significant to the international energy industry as the North Sea was in the 1970's.

It also says the petroleum deposits in Azerbaijan's massive Caspian Sea oil fields are as important as the north slope of Alaska.

The report -- prepared on behalf of Azerbaijan authorities by the EBRD's country promotion team and bank staff -- was released at the EBRD's sixth annual meeting in London this week.

The report says by 2010 investment in the country's oil and gas sector alone could reach $23 billion. It says the capital, Baku, is well on the way to becoming a "world class boom town."

"The new mood in the nation's capital comes from anticipation of the first oil being shipped out to Western markets from Azerbaijan's Caspian Sea oil fields later this year," says the report. Confidence also stems from the fact that "foreign investment in Azerbaijan rose five-fold in 1996 to $342 million, mostly in the oil sector."

The report says international oil companies are stepping up the pace of exploration and development in the Caspian Sea region, and rapid progress is being made in upgrading the pipeline network needed to get Azeri crude onto the international market.

The report says oil could begin flowing to international markets from the Chirag, Azeri and deep water Guneshi fields in the second half of this year. This would "prove to the international community that Azerbaijan is capable of dealing with the complicated pipeline politics involved in moving crude oil from the landlocked Caspian Sea to the Black Sea, from which crude can be moved to the Mediterranean."

The first shipments of oil will generate hard currency to finance government participation in further developments of the energy sector.

Overall, the economic outlook for 1997 is "very promising." The report says, "The year has started out on an even brighter note...the economy is forecast to move from modest to rapid growth."

The report says that selling "early oil" will not only make a positive contribution to the country's hard currency position -- up to 70,000 barrels a day are expected to go on sale in Western markets -- but will also boost the nation's profile among international investors.

The report says that after five difficult years of negative growth, the economy grew at an estimated 1.2 percent in 1996. It is forecast to grow by five percent this year. The report says: "The pace of expansion could accelerate in 1998 and 1999 to between seven and eight percent."

Inflation has also dramatically improved after withstanding thousand-percent-plus hyperinflation in 1993 and 1994, Azerbaijan scaled price rises back to 412 percent in 1995 and to a "remarkable" seven percent in 1996. Inflation this year is forecast to be 12 percent.

The current account deficit widened from 11 percent to 19 percent of GDP in 1996. But much of this was due to the flow of funds to the oil sector. Leaving this out of the equation, the 1996 current account deficit was seven percent, slightly less than in 1995.

The exchange rate picture also looks satisfactory. The manat has been appreciating in value. And hard currency receipts will improve as shipments of "early oil" to international markets begin later this year.

The EBRD report notes that in February, Azerbaijan began a major privatization program by transferring shares in state-owned companies to private hands through a voucher scheme. The goal is to privatize 70 percent of all state-owned enterprises. The focus of economic reform this year will also be on the restructuring of state enterprises.

The report says that, in addition to its oil reserves, foreign investors have a variety of other opportunities in Azerbaijan. The republic was one of the most heavily industrialized regions of the former Soviet Union. Its industries include a downstream petroleum industry producing mineral fertilizers, fuels, herbicides and plastics.

Inward investors may also be attracted by heavy industry including machine manufacturing, food processing, textiles and footwear.

But the report stresses that is the oil sector that holds the most allure: "The excitement surrounding Azerbaijan's petroleum sector completes a circle. Baku and the country's Caspian Sea oil fields were a cradle of the energy industry at the dawn of the Petroleum Age a century ago."

The report concludes: "The transition to a market economy will require strength and fortitude. But the accelerating pace of change confirms the confidence of those already investing in the country."