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  •   Oil-Soaked Azeris Find Affluence Elusive

    By Daniel Williams
    Washington Post Foreign Service
    Monday, September 7, 1998; Page A15

    SUMGAYIT, Azerbaijan – Edil Mamedov presides over a whale of an aluminum plant beached among dozens of other industrial, Soviet-age carcasses in this Caspian seaside town.

    He is eagerly anticipating the offshore oil boom that promises to make his sleepy country a new Kuwait or Norway, a new someplace where petroleum means vast and instant wealth. But the wealth from the huge reserves of oil in the Caspian basin has yet to touch Mamedov and his decaying plant. No orders have come in for aluminum sheets, pipeline casings or any other product that might be useful in oil exploration. No trickle has trickled down.

    "This is a sore point with us. We can make things which are needed but the drilling companies prefer to import. So the oil means little so far," he said in his big, empty office on the silent plant grounds.

    His disappointment is shared by most citizens of Azerbaijan and, for that matter, surrounding countries of the former Soviet Union that are awash in oil but also in poverty. So far, the heralded Caspian oil boom is feeding more dreams than mouths.

    After the Soviet Union's collapse in 1991, major Western oil firms flocked to Azerbaijan and other countries around the Caspian Sea, eager to invest billions of dollars to tap unexploited oil and gas reserves. Caspian oil has attracted some of the biggest names in oil, among them Chevron, Mobil, British Petroleum, Agip, Unocal, Arco, Exxon, Pennzoil and the Russian firm, Lukoil. They are individually or in concert exploring for the crude and developing ways of getting it out of the landlocked region.

    But it now appears that major cash flows from oil will not arrive in Azerbaijan for another five to 10 years, experts predict, because oil companies are permitted to recoup costs first. A huge pipeline network is needed to get the oil to market, and the pipelines must be built across difficult and sometimes hazardous territory.

    Ethnic wars in the region threaten to disrupt construction and, eventually, the transport of oil. Construction will take years, and hopes of doing it on the cheap by including old segments of pipeline have faded: The aging equipment is crumbling. Falling oil prices also have made investors wary of costs, slowing the projects.

    "The delay would be easier to take if we didn't know what oil can bring," Mamedov said. "We have let ourselves get excited."

    There is danger in the clash of expectations and reality, the Azeri people say. Falling across Azerbaijan is the shadow of Iranian Shah Mohammad Reza Pahlavi, overthrown in 1979 by Islamic rebels in the name of a frustrated population divorced from the riches of oil. Already, corruption and vast disparities in income between a wealthy few and the impoverished masses have led to comparisons with pre-revolutionary Iran. "It is not hard to see, in a few years, people upset that the dream turned to dust," said Leila Yunosova, chairwoman of the Peace and Democracy Institute, a human rights watchdog.

    The high expectations stem in part from Azerbaijan's storied oil past, a golden age populated by Rothschilds, Rockefellers and Nobels, big cars, ornate mansions and limitless possibilities.

    Sara Ashorbely is a living relic of those times. A historian by profession, at 92 she is also one of the last remaining members of a generation that grew rich off the huge pools of oil that lie beneath the basin of the Caspian Sea.

    Her memories of Baku, Azerbaijan's once graceful seaside capital, and its cosmopolitan life and gay outlook are like a dream for today's Azeris. "I think that when people hear about my world of the past, they see their world in the future," she said in a recent conversation.

    In Ashorbely's writings, oil over the centuries seemed as much a magic potion as an industrial commodity. In the 17th century, white oil, used for lacquer, was scooped up from the ground by the bucketful. Silkworm breeders preferred it because its smoke seemed to energize the worms. Ornately labeled clay cubes were used to transport lamp oil to Persia.

    Ashorbely's own story is filled equally with romance – and despair. Her grandfather, a shepherd, discovered oil oozing from pastures and went into business with the Rothschilds to produce kerosene and eventually gasoline for automobiles. Early in the 20th century, Azerbaijan was producing half the world's oil.

    But the life of private schools, tea under a grape arbor and conversations in French ended with the Bolshevik takeover in 1919. A new, harder-edged romance began: Azerbaijan would nourish dictator Joseph Stalin's vast industrialization campaigns and giant war machine. Ashorbely married a Communist Party official, but her father was killed in a Stalinist purge. Her old family home became a Soviet museum, and she turned to history. "Oil has been everything for this country, and perhaps that is the problem," she said.

    Azeris keenly feel that the current Second Coming of an oil boom should not be squandered. Already there are many signs to suggest that even when the riches flow, benefits may be low to the population at large.

    "It is hard to speak of an oil boom when a fifth of the work force leaves the country to find jobs," said Sabit Bagirov, president of the Entrepreneurship Development Foundation, a trade group.

    Two-thirds of the population lives in poverty, a recent U.N. study reported. As in many former Soviet republics, the life expectancy has dropped since 1990. The United Nations blamed the fall on declining nutritional levels, pollution, stress and a decaying health system.

    Azerbaijan is also burdened with a huge pool of refugees driven from their homes during a six-year war with Armenia over the disputed enclave of Nagorno-Karabakh. Azerbaijan lost the war and control over the region in 1994, and some 700,000 refugees – one out of 10 Azeris – are still housed in tents and container-like shelters along country roads and in apartments abandoned by tens of thousands of Armenians who fled.

    Bagirov fears that Azerbaijan will give in to the temptation to rely totally on oil to recover from the disaster. He notes that loans for other parts of the economy, farming in particular, are difficult to come by. Under the authoritarian rule of President Heydar Aliyev, no one knows what the government spends and who benefits.

    "The government feels satisfied that Azerbaijan is already a superstate. But frankly, it is more smoke than reality," Bagirov said.

    Surveys carried out by the Social and Marketing Research International Co. show a majority of Azeris are optimistic about the future but deeply dissatisfied with their present condition. "There is even significant nostalgia for communism," said Rahim Baku, who heads the firm.

    Sumgayit, for instance, has already been deeply frustrated. The city sits on the north shore of the oil-rich Asperon peninsula, opposite Baku. It is a graveyard of Azerbaijan's industrial past.

    Sumgayit was conceived as a model of Soviet planning: Oil would fuel a giant industrial complex of aluminum, ceramic, glass, petrochemical and other industries. Energy was in effect free and the market guaranteed. Details of efficiency and quality were unimportant. Blocks and blocks of five-story houses were built to shelter workers.

    With the collapse of the Soviet Union, the market for Azerbaijan's industrial goods disappeared and with the transit to a market economy, free fuel was no longer available. Factories shut down.

    "Of course we were hoping that investors would be interested in our plant, too. But so far there are no buyers," Mamedov said.

    He had just finished a loud telephone conversation with an official from the country's electrical energy company, which had cut off power to the plant. "We paid the bill," Mamedov barked. "I swear on my mother's grave. Turn the power back on. If you find out I'm lying, shut us down again."

    His factory once employed 3,000 people. The staff now stands at 1,000 and the plant is working at no more than 10 percent capacity. Wages are often paid three months late.

    The U.N. Development Program worked out a plan to revive the Sumgayit industrial area by turning it into a special economic zone. Investors would receive tax breaks for importing equipment. A special commission would oversee development to cut through bureaucratic tangles in Baku.

    After a year of debate, Azerbaijan's parliament failed to pass any of the recommended measures. Some of the factory managers feared outside investment and lobbied against it. Moreover, outside consultants advised the United Nations that it simply might be better to abandon Sumgayit and its rusting factories and start from scratch somewhere else.

    An idle Sumgayit signifies trouble for the country's legion of unemployed. For them, and for the refugees, the oil bonanza is a distant dream. Their desires are modest: They want to work and they want to go home. "If some of these factories were working, things would be better," said Rashid Zenalov, a construction worker from a village near Nagorno-Karabakh.

    Zenalov, 61, his wife and five children live in an apartment block that had been condemned for faulty construction but now houses dozens of destitute refugee families. With oil everywhere, he burns wood for fuel. Begging and taking odd jobs to get by, Zenalov has also sold 12 cows and jewelry to make ends meet.

    "Oil is just a story for us. All we want is our houses and farms. They say oil will make Azerbaijan strong. But I'm afraid I won't be around to see it," he said.

    If there is a boom face to Azerbaijan, it is glowing in Baku, across the peninsula. Foreign oil companies have renovated the turn-of-the-century mansions of several former oil barons, air-conditioned grocery stores stand on several downtown corners and two fancy hotels have been built. Italian clothing stores, fast becoming an icon of post-Soviet consumer culture, have opened along refurbished pedestrian malls.

    Beneath the glitter deep problems persist. The city suffers from chronic water shortages and electrical brownouts. Potholes make roads into obstacle courses. All are symptoms of an aging public infrastructure. "On the surface, Baku looks better and better, but beneath it all, we are rotting," said Rafail Shirinov, one of Baku's newly wealthy.

    Shirinov is a beneficiary of the lure of oil for foreigners. He rents buildings to foreign companies and founded a bank that in turn finances several other businesses: a supermarket, warehouses, a distributorship for American-made furniture and a private club.

    For all his success, he frets that corruption is making it difficult for Azeris. "Bribes are needed to get anything done," he said. "Everyone is turning a blind eye to it, but it's strangling initiative.

    Shirinov was reluctant to offer concrete examples. But it is easy to find instances that back Azeri complaints that bribery has become a way of life. Travelers at Baku airport find themselves immediately accosted by taxi drivers who have bribed police to let them into the customs area to search for customers. One foreign businessman volunteered that once, when he took out a loan from a local bank, the director solicited a bribe before signing off on it.

    To many Azeris and foreign observers, these anecdotes portend a troubled future. Azerbaijan, they fear, will become another Nigeria, oil-rich but dirt-poor and corrupt.

    The Aliyev government contributes to the cynicism by keeping much of its oil dealing secret and by suppressing opposition political parties and trade unions. Stories of gambling and fast living by Aliyev's son have added to the picture of oil as the balm of a few.

    Government officials urge patience. Many of them were functionaries during the Soviet era, and in the style of Soviet apparatchiks, predict that Azerbaijan's petroleum riches will give rise to a New Azeri Man who will be both industrious and corruption-free.

    "This is a time of transition. Our people are used to getting things for free. Free energy, free handouts," said Namik Nasrullayev, the economics minister. "They don't yet understand that in the global economy, one must work hard, one must strike out on one's own."

    He expresses only optimism that oil will be the center of Azeri life. "This country has been, is and always will be an oil country. That is our fact and blessing," he said.

    © Copyright 1998 The Washington Post Company

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