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Azerbaijan

- introduction

BP and a behemoth

Lack of modern technology, outmoded project management techniques and poor business development are probably the greatest weaknesses in developing local content in Azerbaijan.

Perhaps to a greater extent than almost anywhere in the fomer CIS, the country's oil industry is characterised by its domination by the state oil company (SOCAR), which has yet to shake its reputation as a post-Soviet behemoth - and is attended by all the typical attributes of such an organisation: byzantine working practices, cronyism and opacity - despite Azerbaijan being a signatory to the Extractive Industries Transparency Initiative.

While such a state of affairs is not immediately conducive to a developed local content policy or program, the scale of controversy surrounding the Baku Tblisi Pipeline, has ensured that BP and its partners have paid particular attention to sustainability issues, amongst them local content and community development, with a focus on capacity building, microfinance, and encouraging local entrepreneurs to participate in the local oil economy.

For its part, the government has at least signalled a special interest in developing and encouraging private sector investment in improving capacity in agriculture, communications and IT, tourism and non-oil sectors generally.

Legal certainty?

Local content provisions are most meaningfully enshrined in Azerbaijan within production sharing contracts (PSAs). Legislation remains problematic in many instances. The speed with which much of it has been drafted means that in many instances, key issues are left unresolved, with legislation either yet not enacted, contradictory, or premised on the implementation of regulations that have yet to be promulgated.

Conflicting interpretations, overlapping jurisdictions between government bodies and ministries and substantive gaps, compound this muddled backdrop, while the absence of definite interpretations of many of the provisions of these new laws, and the absence of a tradition in Azerbaijan of a judiciary independent from current political or other considerations, make the application of law uncertain.